Washington, DC: On July 18, the Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Italy.[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]
Italy’s economy has continued to expand at a moderate pace. Real GDP grew 0.7 percent in 2024, supported by spending under the National Recovery and Resilience Plan (NRRP) and a positive contribution from net exports. Despite heightened global trade policy uncertainty, economic activity in the first quarter of 2025 remained resilient amid continued investment growth and a robust labor market. Headline inflation gradually increased to just below 2 percent in June, credit to households has turned positive, and the contraction in credit to corporates has eased. The 2024 public-sector deficit and debt ratios turned out better than projected and enabled a return to a primary surplus. But challenges remain. Public debt remains high, productivity growth is weak, the population is rapidly aging, female labor force participation remains well below the EU average, and regional disparities endure.
Growth is projected to moderate to 0.5 percent in 2025, before temporarily picking up to 0.8 percent in 2026 on the back of increased NRRP-related spending and positive trade spillovers from Germany. Headline inflation is expected to average 1.7 percent this year, before converging to the ECB’s 2 percent target in 2026. There are upside risks, including from global growth acceleration and stronger gains from public investments and reforms, but downside risks remain significant. Productivity growth could disappoint, for example, because of a delayed implementation of the NRRP, trade tensions might escalate, regional conflicts could become more intense, global financial conditions might tighten and financing costs increase, and macro-critical climate-related shocks could disrupt economic activity.
Executive Board Assessment[3]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed the resilience of the Italian economy, with strong policies supporting continued growth and record‑high employment. At the same time, noting that structural challenges from weak productivity growth and rapid population aging have become pressing issues, Directors stressed that accelerating the reform momentum to strengthening Italy’s growth trajectory is a key priority.
Directors commended the strong fiscal performance last year and the return to a primary surplus. They nonetheless noted that public debt remains persistently high and emphasized the need for sustained consolidation to place its trajectory on a clear downward path. In this regard, they welcomed the authorities’ commitment to a medium‑term fiscal plan that balances debt sustainability considerations and investment needs and aligns with the EU fiscal framework. To support these efforts, Directors called for continuing to improve tax compliance, rationalizing tax expenditures, and replacing inefficient subsidies with productivity‑enhancing measures. Any new spending measures should be compensated with savings elsewhere. To solidify the reduction in debt‑related vulnerabilities over the medium term, Directors highlighted the importance of containing pension‑related pressures, improving the cost effectiveness of spending, and de‑risking the public sector by reducing the amount of outstanding publicly guaranteed loans while also strengthening transparency and monitoring of contingent liabilities.
Directors welcomed the further improvement in banking sector soundness, with macroprudential policies that adequately balance stability requirements with the need to support credit provision. Amid an uncertain outlook, Directors called for continued vigilance in monitoring loan quality and links between the sovereign and the financial sector. They also underscored the need to address remaining vulnerabilities among some less significant institutions, and welcomed continued efforts to address the 2020 FSAP recommendations and strengthen the AML/CFT framework.
Directors emphasized that sustained reform efforts are essential to durably lift productivity and growth. They welcomed progress in implementing the National Recovery and Resilience Plan (NRRP) and stressed that full and timely completion remains a priority. Directors highlighted reform plans in the authorities’ Medium Term Plan and noted that successor reforms, building on the design and implementation lessons from the NRRP, should focus on boosting productivity, innovation, the supply of skilled labor, and labor participation, while advancing the transition to renewable energy and resilient energy infrastructure. Directors also broadly supported staff’s recommendations on the green transition and energy security. Better access to risk capital would also help revive private sector dynamism, and deepening EU‑level integration would further improve access to finance. Directors stressed that industrial policies should be well‑targeted to address market failures and be coordinated at the EU level.
It is expected that the next Article IV consultation with Italy will be held on the standard 12‑month cycle.
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Table 1. Italy: Selected Economic Indicators
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2022
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2023
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2024
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2025
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2026
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2027
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Projections
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Real Economy (change in percent)
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Real GDP
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4.8
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0.7
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0.7
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0.5
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0.8
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0.6
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Final domestic demand
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4.8
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2.3
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0.6
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0.9
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0.9
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0.5
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Exports of goods and services
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9.9
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0.2
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0.4
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-2.4
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0.2
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0.6
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Imports of goods and services
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12.9
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-1.6
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-0.7
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-2.0
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0.9
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0.5
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Consumer prices
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8.7
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5.9
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1.1
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1.7
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2.0
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2.0
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Unemployment rate (percent) 1/
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8.1
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7.7
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6.6
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6.6
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6.7
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6.8
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Public Finances
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General government net lending/borrowing 2/
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-8.1
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-7.2
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-3.4
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-3.3
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-2.8
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-2.7
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Structural overall balance (percent of potential GDP)
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-8.7
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-7.7
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-3.5
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-3.1
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-2.6
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-2.5
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General government gross debt 2/
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138.3
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134.6
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135.3
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136.9
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138.4
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138.5
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Balance of Payments (percent of GDP)
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Current account balance
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-1.7
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0.1
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1.1
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0.9
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0.8
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1.2
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Trade balance
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-1.8
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1.5
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2.6
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2.0
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1.9
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2.1
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Exchange Rate
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Exchange rate regime
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Member of the EMU
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Exchange rate (national currency per U.S. dollar)
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0.9
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0.9
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0.9
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…
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…
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…
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Nominal effective rate: CPI based (2000=100)
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104.6
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108.2
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110.0
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…
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…
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…
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Sources: National Authorities; Eurostat; and IMF staff calculations.
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1/ Eurostat.
2/ Percent of GDP.
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/en/Countries/ITA page.
[3] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
