Economic forecast for Italy 2025

The latest macroeconomic forecast for Italy.

Source by : www.economy-finance.ec.europa.eu

Economic growth slowed to 0.9% in 2023 and is forecast at 0.9% in 2024 and 1.1% in 2025, as government-supported residential investment is replaced by RRF-backed capital spending. The fall in energy prices is expected to lead inflation to bottom out at 1.6% this year, before increasing slightly to 1.9% in 2025. The government deficit is projected to drop in 2024, as the sizeable support to housing renovation is discontinued, and to increase again in 2025, based on unchanged policies.

SUMMARY AS BELOW :

Domestic demand props up growth

In 2023, real GDP grew by 0.9%, driven by a vigorous expansion in capital spending. This took the form of sizeable tax credits for the energy-efficient renovation of residential buildings, which continued to display their effects until the end of the year. Consumption expenditure by both households and the government rose by 1.2%. Net exports provided a positive contribution to growth, as exports of goods fell slightly less than imports, while trade in services kept increasing at a healthy pace.

In 2024, economic activity is set to expand at the same rate as in the previous year (0.9%). Government incentives to housing investment are projected to unwind, while investment in infrastructure and equipment picks up gradually. Despite the recovery in real disposable incomes, households are set to increase savings, taking advantage of higher interest rates. Annual household consumption is thus expected to remain subdued, also given the drag from the final quarter of 2023. Net exports are projected to provide a positive contribution to GDP growth.

In 2025, private consumption is set to keep benefiting from positive real wage dynamics. Faster implementation of RRF-backed projects is expected to offset the housing investment shortfall. This is set to boost import demand and result in a small negative net export contribution. Overall, GDP growth is forecast to accelerate slightly to 1.1%.

Labour demand cools as real wages increase

Total employment rose in 2023 by 1.8%, at the same brisk pace as in the previous year, also because self-employment increased again, helped by a more favourable tax regime. This is expected to have a temporary effect, resulting in a decrease in the number of self-employed people as from this year. In spite of an increase in participation, the unemployment rate fell in 2023 and is expected to continue declining over the forecast horizon to 7.3% in 2025.

Energy price fall leads to rapid disinflation

The sharp decrease in energy prices throughout 2023 and early 2024 is expected to abate in the second quarter. A reduction in producer prices has eased pressure across most components of inflation, proving more persistent in labour-intensive services. Thanks to base effects, annual inflation bottomed out below 1% at the beginning of this year and is projected to pick up moderately going forward, reaching a 1.6% annual rate in 2024 and 1.9% in 2025.