Five reasons why Italy is on the up

Italy’s economy is finally showing signs of recovery after falling back into recession last summer. With the help of Christian Shultz, a senior economist at Berenberg Economics, The Local has put together some of the reasons why.

Five reasons why Italy is on the up
Italy's economy is on the path to growth. Italy economy photo: Shutterstock

The European Commission is feeling upbeat about Italy’s prospects, forecasting economic growth of 0.6 percent this year and 1.4 percent in 2016, mostly spurred by external demand and investment.

Foreign investors have also been buoyed by recent merger and acquisition activity.

But there are some more reasons for the uptick.

External economic tailwinds

Cheap oil, a weaker euro and aggressive action through the European Central Bank's (ECB) stimulus programme has helped investment and consumption. The weaker euro is not only expected to attract more visitors from beyond the eurozone, and property buyers, but also foreign investment.

The ECB’s aggressive easing and its side effects, especially the weaker euro, are also lending Italy's export market a helping hand.

Less austerity

Finally, there is less austerity in Italy, with fiscal adjustment ending in 2013. Since last year, the cyclically adjusted primary surplus has fallen.

Instead, Italy has €1.6 billion more to spend thanks to a reform clause in EC budget rules that allowed the country to raise its national deficit slightly. The extra money is likely to be spent on social initiatives and helping low-income families.

Private consumption is also forecast to increase slightly as households restore their savings.

Fading risks

Russian President Vladimir Putin’s aggression against Ukraine hit Italian manufacturers particularly hard last year.

But now the sector is enjoying a rebound as the Putin factor fades.

Industrial production rose 0.6 per cent in February, compared with a 0.7 percent decline in January.

Business and consumer confidence indexes in recent months have also been encouraging. 


Since premier Matteo Renzi's controversial labour reform, aimed at overhauling Italy's rigid labour market, was approved in December, Italian business confidence has picked up much more than, say, France’s.

Foreign investors have also been closely watching the reforms that came in under the so-called Jobs Act, which makes it easier for companies to hire and fire.

But it will take time for the reforms to properly boost investment and hiring.

Political instability fading

Renzi running high in the polls has diminished the risk of new elections and a standstill.

The new electoral law, approved on Monday and aimed at ending decades of political instability associated with Italy's post-war pattern of revolving door governments, will also bring stability.

Meanwhile, Greece's Syriza' disaster has weakened anti-euro populists.

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