Italy’s Economic Tightrope: Can Meloni Deliver Growth?
Italy’s economic outlook is far from the robust picture often portrayed. Despite receiving substantial EU recovery funds, the nation grapples with sluggish growth, declining real wages, and a massive debt burden. Prime Minister Giorgia Meloni faces mounting pressure as dissatisfaction rises, and her government increasingly resorts to protectionist measures.
The Stagnant Economy: A Deep Dive into the Numbers
Recent data paints a concerning picture. Real wages in Italy have fallen significantly, with a roughly 9% decrease since early 2021 – the largest drop among major OECD countries. Economic forecasts remain subdued, with the OECD and IMF projecting growth of just 0.6% and 0.7% respectively for the current year. This places Italy among the slowest-growing economies in the Mediterranean region of the EU. The official Italian estimate anticipates a slight improvement to 0.8% in 2026, but this remains a modest figure.
Italy’s public debt, while slightly decreasing from 157.7% of GDP during the pandemic to 137.8% (Q3 2025), remains the second-largest in the EU after Greece, totaling over €3081 billion. Furthermore, Italy owes €358 billion to the EU’s TARGET2 system, contributing to its position as one of the Eurozone nations paying the highest interest rates. This financial strain limits the government’s ability to invest in crucial areas like productivity-enhancing reforms.
Filippo Attili/Chigi Palace PR/Keystone
Protectionism and Political Maneuvering
Facing economic headwinds, Meloni’s government is increasingly adopting protectionist policies. The 40% tax on bank and insurance profits in 2023, deemed a levy on “excessive” gains, exemplifies this trend. More recently, plans to offer tax breaks for domestically produced machinery threaten to disrupt trade with countries like Switzerland, a major exporter of machinery to Italy (worth approximately €1 billion annually). This echoes a pattern seen in many right-leaning governments facing economic difficulties.
The government also aims to lower energy prices, which Italian industrialists argue are 30% above the EU average, creating a competitive disadvantage. Blame is directed towards the EU’s “Green Deal,” particularly its impact on the Italian automotive industry. While Meloni prioritizes military security and economic growth, she acknowledges the latter is “modest” but not yet “catastrophic.”
Did you know? Italy has had 68 governments since 1946, highlighting a historical lack of political stability. While Meloni’s government has brought a degree of stability, a significant economic boost remains elusive.
The EU Relationship: A Shifting Dynamic
Meloni’s once-vocal criticism of the EU has softened considerably since Italy began receiving billions in Covid-19 recovery funds (around €140 billion, or 6% of annual GDP). This influx of capital has appeased investors holding Italian state bonds, but it also raises questions about Italy’s long-term commitment to EU policies. Some observers suggest that Meloni’s newfound alignment with EU Commission President Ursula von der Leyen could be reversed if she faces domestic setbacks.
Despite the financial assistance, Italy’s budget deficit remains a concern, currently 6% above revenue. While rating agencies have slightly improved their assessment of Italy’s creditworthiness, the country’s high tax burden (42.8% of GDP, compared to the OECD average of 34%) continues to hinder economic growth.
Internal Challenges and Future Outlook
Meloni faces crucial internal challenges, including a referendum in March on judicial reform aimed at strengthening the independence of judges. A defeat in this referendum could undermine her leadership. She also seeks to amend the electoral law to gain an advantage in the 2027 elections. The lack of a clear economic strategy for Italy’s aging population and the absence of productivity-boosting reforms further complicate the situation.
Pro Tip: Investors should closely monitor the outcome of the judicial referendum and any changes to the electoral law, as these events could significantly impact Italy’s political and economic landscape.
FAQ
Q: What is Italy’s current economic growth rate?
A: Forecasts for 2025 range from 0.6% (OECD) to 0.7% (IMF), indicating very slow growth.
Q: What is Italy’s public debt?
A: Italy’s public debt is over €3081 billion, the second-largest in the EU.
Q: Is Italy likely to leave the Eurozone?
A: While Meloni has previously expressed Eurosceptic views, her government has not actively pursued an exit from the Eurozone, particularly given the financial support received from the EU.
Q: What are the main challenges facing the Italian economy?
A: Key challenges include low growth, high public debt, an aging population, a lack of productivity-enhancing reforms, and a high tax burden.
Further reading on Italy’s economic challenges can be found at the OECD Economic Surveys: Italy and the IMF Country Information: Italy.
What are your thoughts on Italy’s economic future? Share your insights in the comments below!
