Italy Economic Profile, Italian Economy, Italy's Economy, Economy of Italy
The Roman Empire was once the dominant political, military and economic power in the world, but after the post war era of rapid industrialization, the Italian economy today is better known as the ‘Sick Man of Europe’. Italy in 2007 had a population of 58 million and GDP (PPP) of $1.8 trillion. It is the tenth largest economy by purchasing power parity, and the seventh largest by nominal GDP. Italy’s history stretches back several thousand years BC to its links with Greece, and the subsequent development of the Roman Republic and Roman Empire. For centuries, Rome was the effective center of the world, and its military and economy dominated Europe and Asia.
The Empire eventually split into component parts and was replaced by city states, which were major centers of trade, commerce and learning during the Middle Ages and the Renaissance. The Vatican City, center of the Catholic religion, gave the region both spiritual and temporal power. In 1861, the city states unified into modern day Italy. It prospered as a parliamentary democracy until the early 1920s, when the fascists under Benito Mussolini cemented their grip on power. Mussolini allied himself with Hitler during World War II, and the country was invaded repeatedly during its defeat. After World War II, Italy abolished the monarchy and was at the heart of western European institutions such as NATO, the Group of 8 (G8), the OECD, and the European Community, now the European Union. During that time it moved rapidly from an agricultural economy to an industrial power, and now a services-led industry. Services today make up 69 per cent of the economy, industry 29 per cent, and agriculture 2 per cent. Italy has an extremely robust small and medium enterprise sector, with family-owned businesses making up its backbone. It has not been as successful in establishing multinational corporations. Even its famous brand names, those associated with the fashion, wine and automotive industries, have usually been family businesses.
Many of these companies do not have a high level of technology sophistication, and so are facing increasing pressures from a globalized economy where manufactured goods can be produced at much cheaper prices elsewhere.
As a result, growth rates have been slowed to virtually zero. In 2007, GDP growth was 1.5 per cent, slightly above its average this decade. Italy has long been troubled with high levels of corruption and organized crime, high unemployment and debt levels, illegal immigration and a big divide between the advanced north and the poor south. These problems led Italy to be called the ‘Sick Man of Europe’. Indeed, the national debt reached a staggering 124 per cent of GDP by 1995. Repeated austerity measures have attempted to bring this figure down, but it is still officially over 100 per cent. Although unemployment has steadily been declining and now averages 6 per cent, it can reach over 20 per cent in the south. Inflation has traditionally been a major challenge for Italy, but it has been brought down to manageable levels – despite the belief that prices virtually doubled when the Euro was introduced, thanks to the corruption that is rife in the country. The worldwide economic slowdown is likely to hit Italy hard, since it will be compounded by the country’s own internal problems including the national debt level, high taxation, rigid labour laws and the economic cost of an expensive pension system that will be magnified by a graying population.
The Roman Empire was once the dominant political, military and economic power in the world, but after the post war era of rapid industrialization, the Italian economy today is better known as the ‘Sick Man of Europe’. Italy in 2007 had a population of 58 million and GDP (PPP) of $1.8 trillion. It is the tenth largest economy by purchasing power parity, and the seventh largest by nominal GDP. Italy’s history stretches back several thousand years BC to its links with Greece, and the subsequent development of the Roman Republic and Roman Empire. For centuries, Rome was the effective center of the world, and its military and economy dominated Europe and Asia.
The Empire eventually split into component parts and was replaced by city states, which were major centers of trade, commerce and learning during the Middle Ages and the Renaissance. The Vatican City, center of the Catholic religion, gave the region both spiritual and temporal power. In 1861, the city states unified into modern day Italy. It prospered as a parliamentary democracy until the early 1920s, when the fascists under Benito Mussolini cemented their grip on power. Mussolini allied himself with Hitler during World War II, and the country was invaded repeatedly during its defeat. After World War II, Italy abolished the monarchy and was at the heart of western European institutions such as NATO, the Group of 8 (G8), the OECD, and the European Community, now the European Union. During that time it moved rapidly from an agricultural economy to an industrial power, and now a services-led industry. Services today make up 69 per cent of the economy, industry 29 per cent, and agriculture 2 per cent. Italy has an extremely robust small and medium enterprise sector, with family-owned businesses making up its backbone. It has not been as successful in establishing multinational corporations. Even its famous brand names, those associated with the fashion, wine and automotive industries, have usually been family businesses.
Many of these companies do not have a high level of technology sophistication, and so are facing increasing pressures from a globalized economy where manufactured goods can be produced at much cheaper prices elsewhere.
As a result, growth rates have been slowed to virtually zero. In 2007, GDP growth was 1.5 per cent, slightly above its average this decade. Italy has long been troubled with high levels of corruption and organized crime, high unemployment and debt levels, illegal immigration and a big divide between the advanced north and the poor south. These problems led Italy to be called the ‘Sick Man of Europe’. Indeed, the national debt reached a staggering 124 per cent of GDP by 1995. Repeated austerity measures have attempted to bring this figure down, but it is still officially over 100 per cent. Although unemployment has steadily been declining and now averages 6 per cent, it can reach over 20 per cent in the south. Inflation has traditionally been a major challenge for Italy, but it has been brought down to manageable levels – despite the belief that prices virtually doubled when the Euro was introduced, thanks to the corruption that is rife in the country. The worldwide economic slowdown is likely to hit Italy hard, since it will be compounded by the country’s own internal problems including the national debt level, high taxation, rigid labour laws and the economic cost of an expensive pension system that will be magnified by a graying population.
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