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- GDP (PPP):
- $2.2 trillion
- 0.8% growth
- -0.7% 5-year compound annual growth
- $35,708 per capita
- Inflation (CPI):
- FDI Inflow:
Italy’s economy has been mired in a protracted slowdown since 2011. Despite repeated attempts at reform, economic competitiveness has flagged. Much-needed structural reforms have not been implemented effectively, and the economy remains burdened by political interference, corruption, and the poor management of public finance. Due to the complexity of the regulatory framework and the high cost of conducting business, considerable economic activity remains in the informal sector.
Sharp increases in the debt burden and instability in the financial sector, aggravated by structural weaknesses, are undermining Italy’s long-term development prospects. With public debt over 130 percent of GDP and growing, policy options are increasingly constrained.
Matteo Renzi became Italy’s youngest prime minister in February 2014, leading a coalition government of the center-left Democratic, New Centre-Right, Union of the Centre, and Civic Choice parties. Renzi tried to reform entitlements, taxes, and labor laws. He promised to resign if voters rejected a December 2016 referendum on constitutional reforms. They did, and he was replaced by Paolo Gentiloni. The populist 5 Star Movement won 19 of 20 cities and elected Rome’s first woman mayor in June 2016 municipal elections. Italy has struggled with increased pressure from large numbers of Muslim migrants crossing the Mediterranean and Adriatic Seas.
Property rights and contracts are secure, and the World Bank’s Doing Business survey reports that a mandatory electronic filing system has improved the enforcement of contracts, but court procedures are slow. The legal system is vulnerable to political interference. Corruption and organized crime are significant impediments to investment and economic growth, costing an estimated €60 billion annually in wasted public resources.
The top personal income tax rate is 43 percent, and the top corporate tax rate is 27.5 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 43.6 percent of total domestic income. Government spending has amounted to 50.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.9 percent of GDP. Public debt is equivalent to 132.6 percent of GDP.
Organizing new investment and production remains a cumbersome and bureaucratic process. Inefficient public administration increases the cost of entrepreneurial activity. Systemic deficiencies in the labor market continue to hamper job growth. The government has the legal right to regulate prices but allows most to be set by the market except those for electricity, transportation, pharmaceuticals, telecommunications, water, and gas networks.
Trade is important to Italy’s economy; the value of exports and imports taken together equals 57 percent of GDP. The average applied tariff rate is 1.5 percent. There is no general screening of foreign investment, and most sectors of the economy are open to investment. The financial sector has been under strain. Recapitalization and consolidation of banks have been underway, but progress remains constrained by the burden of nonperforming loans.