Coface, the Italian economy is struggling to take off. Favourable signals are not enough

(Il Sole 24 Ore Radiocor) - Despite some positive indicators on the employment and public accounts front, the Italian economy is struggling to take off. Beyond appearances, growth remains weak, hampered by stagnant productivity and persistent structural challenges. This is highlighted in a report by Coface, a leading global player in trade credit risk management.

In the second quarter of 2025, Italy's GDP shrank by 0.1 per cent compared to the previous quarter, the first decline in two years, confirming the fragility of the recovery (the country did not return to pre-crisis GDP levels of 2008 until the end of 2024), the report said. The contraction is mainly due to the decline in foreign demand, a consequence of the weakness of major trading partners and geopolitical uncertainties. Exports of goods fell by 2.2 per cent in the second quarter, after a temporary peak related in particular to the anticipation of new US tariffs. At the same time, household consumption remained stagnant, held back by low confidence and a purchasing power that is struggling to recover, despite stabilising inflation.

Investments, supported by the European funds of the Next Generation Eu plan, are the main driver of growth, Coface explains in the report, pointing out that Italy, the first beneficiary in absolute terms, has already received EUR 122 billion, or 63% of the total resources allocated, well above the EU average (49%). These resources, intended for structural reforms and investments in long-term strategic areas such as digitalisation, ecological transition and social cohesion, should generate a stable multiplier effect. On the employment front, the labour market has reached record levels, with the unemployment rate at 6% and the employment rate at 62.8%. However, the figures conceal a more complex reality: job creation is concentrated in low-productivity sectors (construction, retail, hospitality) and mainly concerns workers over 50. Per capita productivity is thus declining, feeding the vicious circle of weak growth.

Thanks to fiscal austerity and the gradual reduction of the 'Superbonus', the government deficit in 2024 was halved to 3.4 % of GDP. This improvement has reassured the markets and led to lower interest rates on government bonds. However, debt remains high and fiscal room for manoeuvre is limited, especially as potential growth is still weak.

"Italy has been the protagonist of Europe's post-pandemic recovery, but its economy is reverting to old habits: domestic demand is stagnating, foreign trade is under pressure and the country is struggling to turn temporary momentum into sustainable growth," commented Laurine Pividal, Southern Europe Economist, Coface. For Pietro Vargiu, Country Manager, Coface Italy, "the performance of the Italian economy shows how, beyond a few favourable indicators, deep-seated fragilities persistthat limit growth potential. The GDP contraction in the second quarter, the slowdown in exports and a declining productivity signal that the country has not yet unravelled the structural knots that have been with it for years. For Italian companies, this means having to face on the one hand increasing risks linked to volatility and uncertainty, and on the other the need to identify new development trajectories in order to remain competitive. Coface accompanies them on this path, providing timely analysis and protection solutions that help strengthen business in complex and constantly evolving scenarios".