Italian Economy Facts That You Probably Didn't Know About

Italy's economy has the third-largest national economy position in the European Union.

As per the data provided by the Human Development Index, the economy of Italy is the world's eighth biggest economy. As per GDP rating, Italy's economy is the 13th largest economy in the world.

How do we define the economy of a country? In simple terms, a country's economy can be defined as the production, distribution, and consumption of goods and services used to fulfill the needs of people who are operating and living in an area. The progress of a country depends on economic growth. A growing economy is better and stronger than long-term economic growth as it might impact employment levels, GDP (Gross Domestic Product), and a country's national income. There are factors that directly or indirectly affect the economic growth of a country like natural resources, infrastructure or capital, human resources, technology, social and political factors, currency, education, demand and supply, and lastly, foreign trade. Let's look at the changes in the Italian economy from the end of World War II until today and how the people have overcome these economic changes.

History Of Italy's Economy

Italy was the fastest growing and most prosperous land in Europe by the end of the 16th century, but there was a great depression due to stagnant growth and heavy emigration from the 1890s to the '80s and also due to two world wars.

In the '30s, Italy economy declined and Italy's industrial structure almost collapsed. Italian companies became less advanced than central and western Europe by the end of the 19th century. Since this depression, it is recovering slowly but steadily.

Soon after World War II, the Italian economy showed growth from being the weakest economy in Europe to one of the strongest economies.

There was a drastic change in the economic structure, and Italy transformed itself from an agricultural country to one of the best-industrialized economies in the world.

The '70s were known as the 'years of lead' because of Italy's economic, political turmoil, and social unrest. The economy of southern Italy was dominated by the interests of the public sector and the government. After the new regime, from 1922-1925, they initially reduced taxes, trade restrictions, and regulations.

In the '90s, the Italian government struggled to reduce governmental spending, liberalize the economy, lower public debt, and try to stop tax evasion. The economic gap remained pretty wide, despite political and social attempts to reduce the difference in wealth between the north and south and southern Italy's modernization.

The Great Recession hit Italy from 2008–2009 and the subsequent European financial crisis also greatly impacted the country.

In 2015, after Greece, Italy's government was ranked as having the second biggest debt ratio in Europe and the public debt stood at 128% of GDP. The national economy sunk by 6.76%, and in November 2011, the Italian bond yield was 6.74% resulting in losing access to financial markets.

Further economic problems continued such as high unemployment rates, public debt, and a poverty rate of 5.7% of GDP. However, despite not having a growth rate, Italy almost fully recovered from the Great Recession from 2014-2019.

There was a mixed experience of stability and recession, economic growth and stagnation, in the Italian economy by the 21st century.

Italy's Economic Growth

Italian economy follows a mixed economy, a combination of private and state enterprises. As per the reports from the HDI (Human Development Index), Italy enjoys a high standard of living and ranks eighth highest in the world in terms of the good quality of life.

During the '70s, economic and political difficulties resulted in slow growth, and rates fell below the EU average.

Italy is ranked the third-largest in the world in terms of gold reserve and contributes to the budget of the European Union.

By the beginning of the '90s, the Italian state-owned a large number of enterprises. During this time, the economy was structured as a pyramid by dividing the companies at the top, financial companies in the middle layer by dividing them according to the sector, and the last or the bottom level comprised diverse sectors, including banking.

When there was a financial crisis in 2008, Italy suffered from political, economic stagnation, lack of structural reforms, and instability. It grew in 2001 and 2007, with an average growth of 1.2%.

Hong Kong ranks first, and Italy ranks second in terms of private wealth as per GDP ratio in the world.

Italy is famous for its innovative and influential business economic sector. You may be aware already that Italy is the world's largest wine producer in the world.

Italy's economy has more small and medium-sized businesses specializing in high-quality products and lower labor costs that enable them to face competition from upcoming economies.

Making the labor force more flexible resulted in pushing back the trade unions, increasing fixed-term contracts, and contributing to a decline in real wages.

Italy's Industry And Trade

Once upon a time, Italy's economy was based on agriculture which was ruined by the world wars. Then the country introduced industrialization and gained its development. In 1975, industrialization was favored by the European common market and labor force.

The GDP increased from 1951-1963 and from 1964-1973 by 5.8% to 5% annually. However, there came a period of economic and political chaos, and social unrest, as unemployment and inflation rates grew.

Again in the '80s, there was growth in the economy by small and medium businesses, machine equipment, furniture, shoes, jewelry, leather products, clothing manufacturing, and textiles. However, the Great Recession affected the Italian economy.

In terms of industries that played a significant role in Italy's economic growth after World War II, transportation played a vital role. Its role in the economic growth of Italy, included the production of motor vehicles, a railway network that connects not only cities but also other European nations, and airways. Motorways were first built by Italy and are also called 'autostrada.' Currently, there are 415,524 mi (668,721 km) of passable roads, including 4139 mi (6,661 km) of motorways in Italy, state-owned but privately operated mainly by Atlantia company. There are 130 airports in Italy, and 99 of these have paved runways in Italy.

The strength of the Italian economy is its engineering industries and metallurgical, and its weaknesses are energy sources and lack of raw materials. Italy exports medicines, refined petroleum, vehicle parts, cars, and valves to Germany, France, the US, the UK, and Switzerland.

The major portion that results in the economic growth of the Italian economy is the export of goods to export partners, making it the eighth largest export economy in the world. 

Italy is the largest exporter and manufacturer of products, including machinery, furniture, food, fashion, vehicles, and pharmaceuticals.

Another industry that plays an important in the economic growth of Italy is the tourism industry. Tourism accounts for 11.8% of Italy's GDP. The tourism industry has generated the need to develop hotel and accommodation infrastructure. Italy also possesses 51 UNESCO world heritage sites making it an attractive country to visit for tourists from around the world. The most popular tourist destinations in Italy include Pisa, Trento, Venice, Rome, Florence, Milan, Trieste, and Turin. These are among the most visited cities in the country. Approximately 48.6 million visitors visited Italy in 2014, making it the fifth-highest country in the world for international arrivals.

In 2010, a total of 1.6 million farms were located in Italy and most of the lands of the farms lie in South Italy. Italy is ranked as the world's largest producer of wine, including Frascati, Barbaresco, Piedmontese Barolo, and Tuscan Chianti. Italy is also a supreme producer of fruits like olives, plums, cherries, apricots, oranges, kiwi fruits, peaches, and grapes. It also has fishing and livestock sectors.

Approximately 68% of Italians work in the service sector and contribute to 74% of the nation's GDP. The banking sector is a major component of modern Italy's economy. It's the world's second-largest insurance company in revenue.

Italy is known for its trading industry, especially with eastern Europe, North Africa, and the Middle East. Currently, Italy ranks as the eighth top exporter in the world. Italy mainly trades with territories of the EU and other countries such as China and Russia.

Italy's telecommunication sector is also a part of Italy's economic growth in terms of subscribers and internet penetration rates.

Though Italy's economy is ranked as the eighth-largest economy in the world and third-largest economy in the European Union, it experienced the deepest recession after World War II. During the Covid-19 pandemic and the related lockdown, starting from February 2020, Italy was the top country in Europe to be severely affected. It took three months for Italy to come up from the massive shock and gradually come out of the pandemic, and the economy started to recover, especially the manufacturing sector. There has been gradual progress in the Italian economy this year and coming years after the pandemic. To increase the economic performance, the government has plans to cut business taxes, increase public investments, increase retirement pensions and offer early retirement programs. Doing so provides more secure jobs for the younger generation and increases consumer spending.

FAQs

Q. How is Italy's economy?

A. Italy's economy mainly depends on two sectors service sector and manufacturing, which means the economy of Italy is based on capitalism.

Q. What kind of economy does Italy have?

A. The economy of Italy completely relies on capitalism, which means without any government restriction or regulation, privately-owned organizations determine which products they will produce.

Q. What is Italy's economic system?

A. Italy has a mixed economic system with a developed industrial sector in the north which is dominated by private companies, that are highly subsidized and the agricultural south is less-developed, with a provision of underdevelopment and unemployment.

Q. How does Italy make money?

A. Italy makes money from some of the major sources, including machinery, chemicals, automobiles, and textiles.

Q. Does Italy have a good economy?

A. Yes, Italy has a good economy as the economy of Italy is the third-largest national economy in the European Union.

Q. Why did Italy join the European coal and steel economy?

A. Italy joined the European coal and steel economy to integrate western Europe's coal and steel industries.

Q. What part of Italy has a strong economy and major industrial centers?

A. Production of high-quality products such as in the machinery, textiles, industrial designs, alimentary and furniture sectors plays the strongest part in Italy's economy, and the major industrial centers are Piedmont, Lombardy, and Liguria.

Q. What is the made-in Italy effect, and why is that a strength for Italy's economy?

A. The economic problem in Italy increased after 1991 and Italy entered into a deep political and economic crisis, and it felt the effects of a global recession; its weaknesses are energy sources and lack of raw materials.

Q. What solutions have Italy tried to use to fix the economy?

A. The solution that the government came up with concentrated on liberalizing the Italian labor market through the Jobs Act, shifting taxation away from labor, easing the entry and exit of firms, and restructuring and privatizing state-owned enterprises.