Italy is facing significant economic challenges despite recent resilience in its economy and public finances. Last year, the country recorded a primary surplus of 0.4 percent of GDP, and growth was supported by investment, particularly through the National Recovery and Resilience Plan (NRRP). The labor market also saw improvements, with more permanent jobs and a record high employment rate among the working-age population.
Lone Christiansen, Italy’s mission chief at the International Monetary Fund (IMF), explained that "Investment was one of the key factors that supported growth of 0.7 percent last year, in particular through strong implementation of the National Recovery and Resilience Plan—NRRP for short. The labor market also performed well, with more jobs with permanent contracts. And despite the increase in trade uncertainty this year, the share of employed people as a percentage of the working age population rose to a record high."
Christiansen noted that Italy's diverse export goods and destinations have helped protect its economy to some extent from global trade tensions. However, these same trade links make Italy vulnerable to external risks. "The fact that Italy’s export goods and destinations are diverse is also helping to protect the economy to some degree. That said, exports’ central importance is inevitably exposing the economy to global trade uncertainty. As discussed in the IMF’s latest report on the Italian economy, that is why we project growth to slow to 0.5 percent this year, before strengthening to 0.8 percent in 2026 when most of the NRRP infrastructure investments are expected to be completed," Christiansen said.
She added that several challenges remain: "Several challenges and risks loom, many from the outside. One is trade uncertainty and new tariffs on exports to the United States. In fact, recent data already indicate that trade is being impacted. The intensification of regional conflicts, which raise commodity prices, is also a risk, because Italy depends on imported energy. And extreme weather could harm agriculture and tourism."
Two persistent issues—an aging population and weak productivity—continue to limit long-term growth prospects for Italy. According to projections cited by Christiansen: "The working-age population is projected to decline by double digits between 2024 and 2050." This demographic trend compounds existing problems with productivity due in part to a shortage of highly skilled professionals.
To address these structural challenges, Christiansen recommended targeted reforms: "First, double down on reforms to boost labor force participation and productivity... including boosting women’s participation in the labor force (for example, by increasing childcare availability and removing tax disincentives for dependent spouses). We also suggest policies to lift human capital—such as through education and on-the-job training."
She further stated: "More broadly, increasing productivity will need to go beyond people... It is therefore important to develop policies that help the private sector produce and adopt innovation more quickly so that the most promising companies can continue to grow." According to IMF estimates shared by Christiansen: "We estimate that a package of reforms that increases women’s participation in the labor force raises skill levels and increases productivity could boost average annual growth by between 0.1 and 0.4 percentage points during 2025–2050."
Progress has been made under government initiatives such as judicial reforms aimed at reducing court backlogs as well as efforts toward improving tax compliance; investments have also been directed toward railway systems and school infrastructure.
On fiscal policy matters going forward Christiansen commented: "Last year’s strong fiscal performance led to a 0.4 percent primary surplus (revenues minus expenses before interest payments), which was a strong start... Looking ahead; government commitment focuses on bringing down its high public debt (around 135 percent of GDP last year)..." She warned about future pressures: "We project interest rate on public debt will exceed economic growth making debt reduction harder over time... There will also be pressure for more spending on pensions & healthcare as population ages..."
For fiscal consolidation she advised: "...we recommend delivering somewhat more consolidation than planned this year & next—reaching primary surplus of three percent GDP by 2027... Doing so will help reduce debt & increase investor confidence..." Measures suggested include continuing improvements in tax compliance rationalizing tax expenditures phasing out inefficient hiring subsidies eliminating preferential flat-tax rates for self-employed individuals & reducing public guarantees.
On improving corporate prospects Christiansen observed: "Italy doesn’t have enough innovation leaders—large firms at global frontier or young firms with high growth potential... Many small businesses have trouble tapping venture capital financing for innovation & skilled professionals are in short supply..." She emphasized addressing constraints related both nationally—including certain tax incentives limiting firm expansion—and regionally via deeper EU integration which would facilitate larger markets technology adoption diversified financing options improved labor mobility within Europe.
Efforts at both national reform level & regional EU cooperation were highlighted as crucial steps towards lifting Italy's future economic outlook.