Italy: Significant challenges should not overshadow glimmers of hope

Since 2023, Italy has experienced a recovery in its GDP , approaching growth rates close to those seen between 2014 and 2019. However, this recovery still falls short of the performance levels recorded prior to the global financial crisis from 2000 to 2007 , placing Italy among the least dynamic economies in the Euro area . An analysis of GDP growth composition suggests the recovery is primarily driven by an increase in employment, while productivity continuing to decline . Labor productivity indices reveal a widening gap between Italy and other Eurozone countries, highlighting a persistent structural disadvantage in terms of productivity. In the short term, the cyclical factors that have bolstered growth since 2021 are starting to wane . Investment, a key driver of growth, is experiencing a contraction due to the reduction of tax incentives that previously boosted investment spending in the construction sector. In the medium term, Italy's potential growth raises concerns (aging population, underinvestment, declining labor productivity) that suggest a modest growth rate. The growth outlook for 2025 and beyond remains uncertain, but a stabilization around 0.7% GDP growth is anticipated, followed by a slight acceleration toward 1.1% by 2026 . Italy faces numerous structural challenges that need to be addressed in order to foster a more competitive economy.