Italy’s economy reaches pre-crisis peak after long recovery

Financial Times discloses that Italy's economy has finally reached its pre-financial crisis peak, a milestone that underscores both progress and persistent challenges.

For 2023, Italy’s GDP increased by 0.7 per cent, which is 0.2 percentage points lower than earlier estimates. However, the economy expanded by 4.7 per cent in 2022, an upgrade of 0.7 percentage points from previous figures, and by 8.9 per cent in 2021, reflecting a 0.6 percentage point revision. "As a result of the revision, 2023 GDP volumes have reached a level that is, for the first time, higher than the peak before the 2008 financial crisis," stated Istat. The new data shows Italy’s GDP is now 0.2 per cent above its 2007 peak.

"Reaching 2008 output levels is good news for Italy and its debt sustainability," commented Samy Chaar, chief economist at Lombard Odier. Istat reported a downward revision of Italy's public deficit relative to GDP, thanks to a larger economy. However, this milestone highlights how sluggish Italy's economic recovery has been compared to other advanced nations. For instance, Canada and the US returned to their 2007 output levels as early as 2010, with US output volumes now one-third higher than in 2007. Germany and France reached this benchmark in 2011, with their economies now approximately 15 per cent larger than in 2007. 

The UK exceeded its 2007 levels a decade ago and is now up 18 per cent from that point. “The recovery from 2015 to 2019 was insufficient to restore output to pre-global financial crisis levels, with 2008 GDP levels only achieved last year. This starkly contrasts with other advanced economies,” said Nicola Nobile, an economist at Oxford Economics. Italy’s economy has not significantly grown since the turn of the century, while the US has seen a 60 per cent expansion, France and Germany about 30 percent, and the UK 40 percent. Samy Chaar attributed this stagnation to a prolonged lack of investment and innovation, as well as an “inadequate” policy environment. 

“Policy has been overly restrictive for too long, contributing to Italy’s stagnation,” Chaar noted. This issue is compounded by an aging population and declining birth rates; Italy has the highest median age in the EU and one of the lowest fertility rates globally. Low labour force participation and inadequate skill levels further hinder growth. The statistics office indicated that Italy's growth over the past three years was boosted by generous tax incentives for home improvements introduced in 2020, with investment rising by 32 per cent between 2019 and 2023. 

Chaar noted that the economy is gaining from increasing real wages as inflation has declined from its multi-decade highs in 2022, alongside benefits from the Next Generation EU investment program. However, some economists express concern that structural issues may limit Italy's economic prospects. “In the medium term, we believe the Italian economy will revert to a path of modest growth, falling short compared to its peers,” said Nobile. “An aging population, lower education levels relative to its counterparts, and subdued investment will keep potential growth very low.”

By Naila Huseynova