Economy of Italy

From Academic Kids

The Italian economy has changed dramatically since the end of World War II. From an agriculturally based economy, it has developed into an industrial state ranked as the world's fifth-largest industrial economy. Italy belongs to the Group of Eight (G-8) industrialized nations; it is a member of the European Union and the OECD.

Italy has few natural resources. With much of the land unsuited for farming, it is a net food importer. There are no substantial deposits of iron, coal, or oil. Proven natural gas reserves, mainly in the Po Valley and offshore Adriatic, have grown in recent years and constitute the country's most important mineral resource. Most raw materials needed for manufacturing and more than 80% of the country's energy sources are imported. Italy's economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. Its major industries are precision machinery, motor vehicles, chemicals, pharmaceuticals, electric goods, and fashion and clothing.

Italy is in the midst of a slow economic recovery and is gradually catching up to its west European neighbors. Italy's economy accelerated from anemic 0.7% growth in 1996 to 1.4% in 1999 and continued to rise to about 2.9% in 2000, which is closer to the EU projected growth rate of 3.1%. Domestic demand and exports were the dominant factors in GDP growth, but it nevertheless remains one of the lowest among industrialized countries.

Import growth continues to outpace export growth, resulting in a trade deficit in 2000 of $1.3 billion, down from $14 billion in 1999 and $60 billion in 1996.

With respect to inflation, Italy is now firmly within norms specified for Economic and Monetary Union (EMU), a major achievement for this historically inflation-prone country. Consumer inflation fell from 3.9% in 1996 to 1.7% in 1999 but did rise again to 2.5% in 2000. The 1992 agreement on wage adjustments, which has helped keep wage pressures on inflation low, remains in effect. Tight monetary policy by the Bank of Italy also has helped bring inflation expectations down.

Since 1992, economic policy in Italy has focused primarily on reducing government budget deficits and reining in the national debt. Successive Italian governments have adopted annual austerity budgets with cutbacks in spending, as well as new revenue raising measures. Italy has enjoyed a primary budget surplus, net of interest payments, for the last 7 years. The deficit in public administration declined to 1.4% of GDP in 2000, down from 7% in 1995. Italy joined the Economic and Monetary Union in May 1998. The national debt, which stood at roughly 124% of GDP in 1995, is declining steadily and is expected to meet the EU-imposed deficit to GDP ratio of 1.5% by 2006.

Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 59% of its total trade. Italy's largest EU trade partners, in order of market share, are Germany (19%), France (13%), and the Netherlands (6%).


U.S.-Italy economic relations

The U.S.-Italian bilateral relationship is strong and growing. The U.S. and Italy cooperate closely on major economic issues, including within the G-8, which met in Genoa in July 2001. With a large population and a high per capita income, Italy is one of the United States' most important trade partners. In 2000 the United States was the fifth-largest foreign supplier of the Italian market and the largest supplier outside the EU. Total trade between the United States and Italy exceeded $33 billion in 1999. The U.S. ran a $12.1 billion deficit with Italy in 2000.

Significant changes are occurring in the composition of this trade. More value-added products such as office machinery and aircraft are becoming the principal U.S. exports to Italy. The change reveals the growing sophistication of the Italian market, and bilateral trade should expand further. In 2000 the United States imported about $24.5 billion in Italian goods while exporting about $12.4 billion in U.S. goods to Italy. U.S. foreign direct investment in Italy at the end of 1999 exceeded $14.1 billion.


Unemployment has been steadily decreasing but remains high (8.6% in 2003, its lowest level since 1992). It is especially severe in the south where average unemployment exceeded 20% this year. Women and youth have significantly higher rates of unemployment than do men. A rigid labor market serves as a disincentive to job creation. There is a significant underground economy absorbing substantial numbers of people, but they work for low wages and without standard social benefits and protections.

Unions claim to represent 40% of the work force. Most Italian unions are grouped in three major confederations--the Italian General Confederation of Labor (CGIL), the Italian Confederation of Labor Unions (CISL), and the Union of Italian Labor (UIL), which together claim 35% of the work force. These confederations formerly were associated with important political parties or currents, but they have formally terminated such ties. Nowadays, the three often coordinate their positions before confronting management or lobbying the government. The three major confederations have an important consultative role on national social and economic issues. Among their major agreements are a 4-year wage moderation agreement signed in 1993, a reform of the pension system in 1995, and an employment pact, introducing steps for labor market flexibility in economically depressed areas, in 1996. The CGIL, CISL, and UIL are affiliates of the International Confederation of Free Trade Unions.

Italy's employers are represented by Confindustria, the Italian Employers' Federation.


All on its treat agriculture is typical of the division between the agricultures of the northern and southern countries of the European Union. The northern part of Italy produces primarily grains, rice, corn, sugarbeets, soybeans, meat, and dairy products, while the south specializes in producing fruits, vegetables, olive oil, wine, and durum wheat.

Even though much of its mountainous and nootinous terrain is unsuitable for farming, Italy has a large work force (1.4 million) employed in farming. Most farms are small, with the average farm only 7 hectares.

Italian exports

With the deathknell of mercantilism and the fall of the European Empires, came the beginnings of globalization and the economic idea that a country could not be an autarchy, and as a result countries would from now on begin to specialize in particular industries. Major countries, to be sure, would and do continue to maintain a number of key industries, however, no one country is self-sufficient. Some countries are rich in certain natural resources and thus might export these in raw form to countries lacking the resources; alternatively the may process these goods and export these. A developed economy is usually marked by the production of highly-processed goods and services; what follows is a brief account of Italy's most famous exports.

Italy's strength lies in the fields of food, clothing, and luxury automobiles. Famous Italian foods have been brought to the rest of the world through Italian immigration, especially to the United States, the United Kingdom, Canada and Australia. Italian foods include a multitude of pasta dishes (originating in 1500s Italy), pizza (born in 1800s Naples), ice cream (the stereotypical italian ice cream vendor), parma ham, Padana rice, parmesan cheese and especially wine. The most famous Italian wines are probably the Tuscan Chianti and Piedmontese Pinot Grigio. Famous Italian pasta dishes include spaghetti alla bolognese, often abbreviated to 'spag bol', and macaroni and cheese, often abbreviated to 'mac & cheese'. Principle pizza plates include pizza margherita, quattro stagioni, and others.

While processed goods like computers may be produced with no special links with the place of origin; a computer plant may be located in Kansas or Guangdong - it dosen't especially matter to the final product if production is the same, goods in which Italy specialises are more often than not 'doc' or 'of controlled origin'. This 'doc' certificate, which is attributed by the EU ensures that the origins and work that goes into a product are recognised. For example, while many multi-nationals may claim to produce parmesan cheese, they in fact, do not. Parmesan cheese is prepared from a specific type of cow, in a specific way, in a specific region of Italy - consumers are becoming more and more aware of the price premium they pay for getting the real deal.

Italy does not possess the abundant natural resources of the United States or Canada, and as a direct result most of its exports are processed goods and more specifically luxury goods. With fierce competition from abroad, the only way Italian industries can survive is if they produce a service or product which is so unique that it cannot possibly be copied (which is often easily done with machines for example). Italy has so far not succeeded in carving out its 'market niche', but the Italian brand is strong and its bases are very sound. What is required is a concerted effort to protect the origin of genuine Italian products are their superior quality over other goods.

Italy is perhaps best known for its fashion houses; Versace, Valentino, Fendi, Gucci, Prada, Cavalli, Sergio Rossi, Dolce & Gabbana, Benetton, Armani and others.

Ferrari, Maserati and Lamborghini are all inimitable Italian goods - the products of great engineering and a hallowed tradition of style and elegance. Italy is good at style and elegance, and that is what it needs to accentuate if it is to survive today's competitive world.

See also

European Union (EU)
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Flag of the European Union

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