Ciao!
Known for Neapolitan pizza, scrumptious pasta, a history of the Roman Empire,
enchanting sports cars, and a worldwide regarded fashion industry,
Italy is the 8th largest economy in the world by GDP.
After the end of World War II, Italy was devastated but luckily it was not on the
Soviet’s side of the Iron Curtain. Italy has similarities with other
European countries like Germany that saw a post-war boom in its economic conditions.
The country received US$1.2 billion from 1947 to 1951 under the Marshall plan backed by the
United States. The plan was to help the war-torn country to recover and also to
keep it away from the influence of the Soviet Union, and from the clutches of
communism that could make anyone envision the “greenest-grass” they could possibly imagine.
It worked, well, at least for the first couple of decades.
The economic recovery didn’t end with the Marshall Plan as it was followed by
the demand for products used in the Korean War that boosted Industrial production.
The formation of the European Common Market in 1957 helped the country even further with
more investments and trade options. All these factors, along with a large
labor force acted as a cornerstone for the modern Italian economy. The country recorded an average
GDP growth rate of 5.8% per year between 1951 and 1963 and 5% between 1964 and 1973.
These figures were impressive and second only to the German economy among the European countries.
This was all going great until the “Hot Autumn”, a series of strikes from 1969 to 1970, in which
workers demanded better pay and better working conditions. The 1970s brought unrest of every
sort, be it economic, social, or political. While this time was referred to as the “Years of Lead”,
the country lost all the lead it had earlier taken. 1973’s oil crisis was a contributing
factor too. The economy went down the drain with high unemployment and high inflation
rates. The currency Lira fell from 560 Lira to the U.S. dollar in 1973 to 1,400 Lira in 1982.
For what was once described as an “economic miracle” was no more!
This went on until around the mid-1980s when a set of reforms were implemented that lowered
the inflation rates. This eventually resulted in what could be described as another economic
miracle with small and medium-sized enterprises taking the lead, fueled by increased productivity
and exports. Italy at this point somewhere around 1987 surpassed the economy of the United Kingdom
and was behind only the economy of the United States, Japan, and West Germany.
In the 90s, due to the Euro Convergence Criteria, the country had to lower its
public debt. To make this possible they had to follow a set of restrictive economic policies.
The recession of the early 1990s had its impact too. These policies along with the
high taxes and red tape made the economy fell into stagnation between the years 2000 to 2008.
2008’s Great Recession and the succeeding European debt crisis
were not kind to the Italian economy. It made the economy shrank by nearly 7 percent.
The country took reforms to cope with the issue that brought the deficit down but it made the
economy fell into a double-dip recession in 2012 and 2013. Italy found itself among the group
of countries that were described with a slightly offensive acronym “PIIGS” that included Portugal,
Ireland, Italy, Greece, and Spain, which was intended to highlight the countries that were
at greater risk in the Euro-Zone Debt Crisis. While the economy was able to somewhat recover
from 2014 to 2019, the country was never able to improve the growth rates. And before anything
could be done about it, the whole world along with Italy suffered economic losses incurred by 2020.
Talking about the country’s romanticized image with pasta, pizza and operas remains acceptable,
but talk about the country’s image with fast trains, and everyone pulls back and
considers it not much “Italian”. The truth is that Italy was painted in the corner as a
basket case and a backward European member while that's not the case. Italy is the
tenth biggest exporting nation and a leading economy in many sectors including machinery,
vehicles, pharmaceuticals, precious metals, clothing, and accessories,
etc. With nearly 60 percent of its trade with the European Union, Italy is the second-biggest
manufacturing country in Europe fueled by small to medium-sized enterprises.
Now that being said, the Italian economy does have many problems,
but as with most cases, the long-term permanent change comes from within.
Political instability is one of the factors that negatively impact the Italian economy.
Since the end of World War II, Italy has over 65 governments, that is on average of one government
every 1.14 years. Governments are usually formed on large coalitions of multiple parties and are
often short-lived while politicians are allegedly accused of corruption. In such an environment of
low-level trust in the government, tax evasion becomes an inclination for many citizens.
While Italians are cautious of debt and how they spend money,
the government is a whole different story. Italy is among the nations with the highest government
spending that accounts for nearly half of its total GDP. While government spending is not a
bad thing if it could yield some output, a continuous high government spending compared
to the available revenues is making the country accumulate to more and more debt.
Italy is one of the top five countries with the highest debt to GDP ratio. It has reached nearly
160 percent of the total GDP with no end in sight. Italy is one of the biggest spenders of money when
it comes to pensions. The country spends over 16 percent of its GDP on pensions,
which is the second biggest among the OECD countries after Greece.
“Baby-Pensioners” are quite a topic in the economic news of the country.
Italy has not seen any significant growth in GDP in the last two decades including negative
values multiple times. The country’s GDP per capita is also below the European Union average.
While countries like Netherlands and Germany benefited from the Euro, the Italian economy
has arguably suffered from it. Germany boosted its export sector by leaving a high-value Mark for a
low-value Euro, Italy on the other hand, witnessed opposite results by leaving Lira and jumping up to
the Euro. Italy’s idea of parallel currency and mini-BOTs has also caused quite a controversy.
Italy is a well-regulated country when it comes to labor laws mostly to the advantage of employees.
While worker protection is great and has many benefits, it also contributes to unemployment,
a similarity it shares with France. It's difficult to fire people so
businesses have to think critically when hiring them in the first place.
The country suffers from a high unemployment rate. The official figures are debatable as
they are artificially inflated using numbers of informal work including contract workers,
casual laborers, piece-rate workers, etc. On the other hand, the employment rate,
which is a measure of the extent to which the available labor force is used,
is one of the lowest and stands at around 58 percent.
Youth unemployment rates of Italy are among the highest in the OECD countries
and sit at 30 percent. Youth unemployment is an important factor to think of as young people are
more likely to spend money in the economy while older people are more likely to save
and be less interested in things they don’t need. In short, While a younger individual
is more likely to feel enthusiastic about a cool gadget that's just been introduced,
an older individual, generally speaking, would just be less thrilled to buy the same product.
In other words, older individuals are linked to low domestic demand while
younger individuals keep the money circulating in the economy giving it a necessary stimulation.
Italy has the second-highest oldest population with almost 23 percent of its total population
over 65 years old. On top of that, the country has a low fertility rate. This combination of a
high older population along with a low fertility rate is similar to what we have seen discussing
Japan that has also witnessed stagnation in its economy. While we are certainly not claiming
that the population numbers are to be blamed altogether, they are certainly one of the factors.
The time when Italy’s economy was booming was when its population was younger.
In Italy, younger individuals stay a lot longer with their parents compared to other western
countries. But wait a second! Before you call them momma’s boy, you have to know that it's more of a
cultural thing and people around the world are just different from each other in many ways.
How does this relate to economics? Well, these younger individuals rely on their parents and
use their connections and a majority of the population goes to do the same
job as their parents. Such an environment can also draw cronyism and nepotism.
This is also not good in cases that require more risk-taking like entrepreneurship.
In short, for Italians, family comes first and this has a big impact on a lot of decisions
they make. People from the south have much stronger family ties compared to the north.
The country has one of the lowest percentages of tertiary education attainment.
Young Italians in recent years are more inclined towards leaving the
country in hope of finding a better job as one of the primary reasons.
The topic of the Italian economy goes untouched without mentioning the inequality between the
northern and southern regions of Italy. Northern regions like Lombardy are much more advanced.
The average GDP per capita earned in Northern Italy is much higher compared to southern Italy.
There are historical, cultural, geographical as well as criminal reasons among the many.
However, the figures on the southern side would be slightly higher or close to the
center once numbers from the shadow economy are considered. The exaggerated view of the
Italian Mafia and organized crime popularized in the movies can’t be denied altogether.
Italy takes its vine seriously. While France takes the lead when it comes to consumption, Italy is
the global leader when it comes to its production with over 22 percent of the total global market.
Other important agricultural-related exports include olive oil and cheese.
Despite having a reputation for how Italians drive their cars,
Italy has a prestigious automotive industry with car brands like Ferrari,
Maserati, Lamborghini, Alfa Romeo, and Ducati bikes. We wouldn’t mind
if Germans want to compare their cars with Italian brands in the comment section below.
There are products that you don’t need but you can’t deny you want
them. Italian fashion and luxury industry is a perfect example.
Italy is among the top five countries with the biggest luxury industry in the world.
Think of brand names like Gucci, Armani, Veneta, Prada, Versace, Dolce & Gabbana, etc.
charging you hundreds and thousands of dollars with their high-quality products and logos.
From Rome’s Colosseum to Florence’s Duomo Santa Maria del Fiore,
From Milan’s Duomo to the Grand Canal of Venice, From Leaning Tower of Pisa to Lake Como, Italy is
in the top ten list of most visited countries as well as one of the biggest by tourist spending.
If we ignore 2020, travel & tourism is an essential pillar to the Italian economy
contributing to over 13 percent of GDP, employing over 14 percent of the workforce.
Italy has an exaggerated stereotype of mafia,
not paying taxes, and an economy always ready to crumble.
Calling Italy and some other European countries with the acronym of PIIGS was uncalled for.
While Italy has a lot of old-age dilemmas that appear
unfixable and many economic issues, and we have highlighted plenty of them,
its economy should not be treated like it's on the verge of becoming something like Argentina
or Venezuela. The Italian economy is still a big manufacturing hub and no basket case!
We hope you have enjoyed the video. Don’t hesitate to share your opinion and we would try to reply
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