Italy Needs Higher Productivity and More People Working

IMF News, July 15, 2025

Source details

Italy’s economy remained relatively resilient despite global uncertainty.
Key contributors to resilience:
- Investment supported growth, notably through strong implementation of the National Recovery and Resilience Plan (NRRP).
- Labor market improvements, including more jobs with permanent contracts.
- Share of employed people as a percentage of the working-age population rose to a record high.
- Diverse export goods and destinations provide some protection.
Recent performance and projections:
- Growth was 0.7 percent last year.
- Projected growth is 0.5 percent this year.
- Projected growth is 0.8 percent in 2026 when most NRRP infrastructure investments are expected to be completed.
Fiscal outcome last year:
- Primary surplus of 0.4 percent of GDP.

External and immediate risks:
- Trade uncertainty and new tariffs on exports to the United States; recent data indicate trade is being impacted.
- Intensification of regional conflicts that raise commodity prices; Italy depends on imported energy.
- Extreme weather risks harming agriculture and tourism.
Long-term structural constraints:
- Population aging and weak productivity.
- Working-age population is projected to decline by double digits between 2024 and 2050.
- Shortage of highly skilled professionals limiting innovation and productivity.
- Small innovative firms struggle to become large firms; constrained business dynamism and limited venture capital access.

Labor force participation and human capital:
- Boost women’s participation in the labor force (examples: increase childcare availability; remove tax disincentives for dependent spouses).
- Lift skill levels through education and on-the-job training.
Measures to support firm growth and innovation:
- Develop policies to help private sector produce and adopt innovation more quickly so promising companies can grow.
- Address constraints that prevent small firms from tapping venture capital and scaling up.
Structural and EU-level actions:
- Deepen the single market and the capital markets union to address fragmented European markets and increase effective market size.
- Support EU-wide initiatives on artificial intelligence and other frontier technologies.
- Pursue European labor mobility reforms to narrow the skills gap.
Estimated impact of reforms:
- A package that increases women’s participation, raises skill levels, and increases productivity could boost average annual growth by between 0.1 and 0.4 percentage points during 2025–2050.

Recent fiscal strength and medium-term goals:
- Last year’s primary surplus: 0.4 percent of GDP.
- Public debt was around 135 percent of GDP last year.
- Government commitment shown in its medium-term fiscal-structural plan.
Rationale for faster consolidation:
- Projected interest rate on public debt will exceed economic growth, complicating debt reduction.
- Aging population will increase pressure for spending on pensions and healthcare.
Recommended fiscal target:
- Deliver somewhat more consolidation than planned this year and next—reaching a primary surplus of 3 percent of gross domestic product by 2027.
Suggested fiscal measures to soften growth impact and improve equity:
- Continue to improve tax compliance.
- Rationalize tax expenditures (for example, phasing out inefficient hiring subsidies).
- Eliminate the preferential flat-tax rate on income of self-employed people.
- Reduce public guarantees to strengthen resilience and reduce risks.

NRRP implementation is well underway with measures including:
- Judicial reforms to reduce court backlogs.
- Improvements to tax compliance.
- Investments enhancing the railway system and school infrastructure.

International Monetary Fund