How capable will Italian industry be?
In 25 years, among the 27 European countries, it was ours that had the biggest drop in production: it lost 23%.
4' min read
4' min read
We all hazard predictions on how much Trump's tariffs will weigh on the manufacturing industry of a major exporting country like Italy, but we do so without even knowing the effects of past international crises. To remedy this, at the Osservatorio delle Imprese della Sapienza we have studied how much manufacturing in Italy has changed in the last quarter of a century: from 2000 shortly after the debut of the euro, to 2008 when Lehmann went bankrupt, to 2020 with the Covid pandemic, to 2024 with the wars still going on. We started from the data on business confidence, most recently published by ISTAT on 25 July, from those on industrial production from Eurostat for the 27 European countries and from ISTAT for Italy published just today. We developed an indicator of the productive capacity of Italian manufacturing and compared the results with publications by Bankitalia, Confindustria, Mediobanca, and Abi.
Let us begin with the Eurostat index on industrial production. Between the first and last quarter of the 25 years studied, production in the EU-27 increased by 24%, but with very large differences from country to country. Ireland increased the most (+447%), followed by Poland (+287%), Turkey (+276%) and Lithuania (+263%). Then come other Baltic and Eastern European countries. Among the founders, the Netherlands (+36%) and Germany (+17%) increased it. Do you know who among the 27 had the biggest drop in production? Sorry to say, but it is Italy with minus 23%, almost a percentage point of capacity lost every year, worse than France, Greece, Spain, Portugal. It is safe to assume that there has been a shift of manufacturing away from Italy for economic convenience.
In order to test this hypothesis, we took the production index for Italy for each quarter of the 25 years and divided it by the corresponding capacity utilisation, which is attached by Istat to the business confidence. The result of this division is an indicator of the production capacity of the plants. Which is the maximum production that can be achieved in a period of time with an optimal organisation of production factors. The capacity increases if companies make expansion investments and/or new plants, it decreases if companies close old or unprofitable plants. In any case, the indicator measures a structural, long-term business fact.
Our calculations showed that over the 25 years the Italian manufacturing industry has lost one fifth (19%) of its initial capacity due to the definitive closure of production plants. From the cumulative data of Area studi Mediobanca, we calculated that the plants of medium and large industrial enterprises had a life expectancy of 16 years and a seniority of 10 years in 2000. Well, in 2024 their seniority has almost doubled from 10 years in 2000 to 16 years (end of life) in 2009 and 19 years in 2023. This ageing has been caused by a scarcity of material investments, which in a quarter of a century have amounted to only two-thirds of the financial resources generated by internal management, resources that are moreover impoverished by generous dividends. At Sapienza, we are thinking about the investment function and the hundreds of variables on which it may depend.
A first significant loss (-10%) of production capacity, with the closure of plants, occurred in June 2010, two years after the Lehmann crisis and one year after the age of plants in Italy (16 years) had exceeded life expectancy. The hypothesis of a relocation to emerging countries of many processes (they are called value chains) is confirmed by a simultaneous drop of more than 3 points in value added as a percentage of turnover between 2009 and 2012. As we know, value added is how much a company puts into the product it sells. This means that the international financial crisis of 2008 was only the trigger for closures that had already matured in Italy due to lack of investment and ageing factories. In 2017-18, production capacity temporarily rebounded thanks to the super-amortisation instrument, which we suggested in 2015 and launched to a limited extent in 2016.
