Italy's Economy Under Meloni: Navigating Growth, Debt, and Global Headwinds (2022-2027)

Since Giorgia Meloni's government took office in October 2022, Italy's economy has been under close scrutiny, balancing domestic policy shifts with a challenging global landscape. This report provides a comprehensive overview of Italy's economic performance under the Meloni administration, examining key indicators through 2025 and projecting prospects for 2026 and 2027.

Performance Under the Meloni Government (2022-2024)

The Meloni government has aimed for a blend of fiscal discipline and targeted economic interventions. While presenting a face of fiscal responsibility to Brussels, adhering to EU deficit targets and managing the debt-to-GDP ratio, a closer look reveals underlying challenges and strategic policy shifts.

Key Economic Highlights (2022-2024):

• GDP Growth: Italy has shown resilience, with Confindustria highlighting that Italy outperformed Germany in GDP growth from 2018-2023, averaging +1.0% per year versus Germany's +0.3%. This marks a significant shift in relative performance.
• Investments: Productive investments have seen a significant expansion, increasing by +17.8% since 2019, outpacing other major European countries. The National Recovery and Resilience Plan (NRRP) is a key driver for these investments.
• Manufacturing and Exports: Italy's competitive manufacturing sector, the second largest and most diversified in Europe, continues to be a strength.¹ Exports of goods have risen by over 45% in value since 2015, contributing to a strong net international investment position.² The government has prioritized protecting traditional industrial strengths, alongside focusing on food and wine, automotive, and high-tech sectors.
• Fiscal Policy: The government has made efforts to reduce the public deficit. A notable measure was the abolition of the "110% Superbonus" and "Façade Bonus" tax incentives, which, while boosting construction, significantly increased public spending and the budget deficit. This move has been credited with contributing to a projected reduction in the public deficit from 7.2% in 2023 to a projected 3.4% in 2024.
• Employment: The unemployment rate has seen fluctuations but has generally trended downwards, reaching near 18-year lows in early 2025. However, challenges persist, particularly with youth unemployment (around 19% in March 2025) and female labor force participation, which remains among the lowest in the EU.³
• Trade Balance: Italy has maintained consistent trade surpluses, notably increasing its trade surplus with the United States, driven by key manufacturing sectors.⁴
• Productivity: Labor productivity has stagnated, with only 0.3% annual growth since 2010, and real wages in early 2024 were still 6.9% below pre-pandemic levels.⁵ This remains a structural weakness.

2025 Economic Outlook

The Italian economy in 2025 is expected to continue on a path of moderate growth, albeit facing some headwinds.

Key Projections for 2025:

• GDP Growth: The Bank of Italy projects GDP growth of 0.6% in 2025, driven mainly by a recovery in consumption.⁶ The European Commission, however, has slightly cut Italy's 2025 growth forecast to 0.7%, citing falling productivity and potential tariffs.⁷
• Inflation: Consumer price inflation is projected to remain relatively low, averaging around 1.5% in 2025. Core inflation (excluding food and energy) is expected to average 1.8%.
• Unemployment Rate: The unemployment rate is forecast to hover around 5.9% to 6.0%. Youth unemployment remains a concern, having risen to 19% in March 2025.⁸
• Public Debt: Italy's public debt-to-GDP ratio is projected to increase to 136.7% in 2025, continuing an upward trajectory.⁹ This is partly attributed to lagged impacts of building renovation tax credits from previous years.
• Domestic Demand: Domestic demand, particularly investment fueled by the NRRP, is expected to support economic expansion. However, external factors like potential US trade tariffs are anticipated to affect exports.¹⁰
• Fiscal Balance: The government aims to bring the deficit below 3% of GDP by 2026, though it is projected to be around 3.3% in 2025.¹¹

Prospects for 2026 and 2027

The medium-term outlook for Italy's economy suggests continued modest growth, with ongoing efforts to manage public finances and address structural issues.

Key Projections and Prospects for 2026-2027:

• GDP Growth:
  • 2026: Bank of Italy projects 0.8% GDP growth.¹² The European Commission forecasts 0.9%, which would place Italy among the lowest growth rates in the EU.¹³
  • 2027: Bank of Italy projects 0.7% GDP growth.¹⁴
  • Overall, the increase in tariffs and global uncertainty could curb GDP growth by approximately 0.5 percentage points for the 2025-2027 period.
• Inflation:
  • 2026: Inflation is expected to remain low, around 1.5%.¹⁵ Core inflation is projected to decline to 1.6%.
  • 2027: Inflation is forecast to rise slightly to 2.0%, partly due to the extension of the EU Emissions Trading System (ETS2) to cover fuel combustion in buildings. Core inflation is expected to remain around 1.6%.
• Unemployment Rate: The unemployment rate is projected to continue a marginal decline, reaching around 6.0% by 2027. Employment is expected to grow, albeit at a slower pace than GDP, leading to a slight recovery in labor productivity.
• Public Debt: The debt-to-GDP ratio is projected to continue rising, reaching approximately 138.2% in 2026 and potentially 139.0% in 2027, driven by stock-flow adjustments and the interest rate-growth differential.¹⁶ Bringing the deficit back below the 3% GDP threshold by 2026 (projected at 2.9%) is a key objective under renewed EU stability pact rules.
• Investments: Investments will continue to be supported by the NRRP, though high uncertainty and reduced incentives for residential construction could act as dampeners.
• Consumption: Household consumption is set to continue expanding, buoyed by improving purchasing power and lower interest rates.
• External Sector: Exports are expected to return to growth in 2026 after a potential decline in 2025, though at a slower pace than foreign demand due to competitiveness issues. The current account balance is projected to stabilize around 1.0% of GDP.¹⁷

Challenges and Opportunities

Challenges:

• High Public Debt: Italy's persistently high public debt remains a significant vulnerability, particularly under the stricter rules of the renewed EU Stability and Growth Pact.¹⁸
• Low Productivity: Stagnant labor productivity continues to hinder long-term growth potential and wage increases.¹⁹
• Demographic Trends: Italy faces unfavorable demographic trends that could impact its workforce and social security systems in the long run.²⁰
• Global Headwinds: Trade tensions, particularly potential US tariffs on EU imports, and geopolitical uncertainties pose risks to Italy's export-oriented economy.²¹
• Structural Reforms: While some reforms have been initiated, deeper structural reforms are needed to enhance competitiveness and address long-standing issues in the labor market and bureaucracy.

Opportunities:

• NRRP Implementation: The effective utilization of funds from the National Recovery and Resilience Plan can significantly boost investments and modernize infrastructure.²²
• Strategic Industrial Policy: The government's focus on protecting and promoting key industrial sectors, including high-tech, offers potential for growth and diversification.
• Attracting Investments: Initiatives to attract foreign direct investment and incentivize the relocation of economic activities back to Italy could provide a boost.
• Tourism: Italy's strong tourism sector continues to be a vital contributor to the economy.²³

Conclusion

Under the Meloni government, the Italian economy has shown resilience and some positive shifts, particularly in investment and manufacturing exports.²⁴ The government has prioritized fiscal discipline in its engagement with the EU while also implementing targeted domestic policies.²⁵ However, significant challenges remain, primarily concerning the high public debt, persistent productivity issues, and a fluctuating labor market, particularly for youth.

Looking ahead to 2026 and 2027, Italy is expected to maintain moderate growth, largely driven by domestic consumption and NRRP investments. The ability of the Meloni government to effectively implement structural reforms, manage its debt trajectory, and navigate evolving global trade dynamics will be crucial in determining Italy's economic performance and its standing within the Eurozone in the coming years.

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Source: Economia Italiacom