MedMarkets: Positive prospects for the Italian Economy in 2025 clash with manufacturing decline and economic stagnation
The slowdown in Italy’s industrial sector and flat GDP in the fourth quarter of 2024 come at odds with the positive prospects for the Italian economy in 2025 as January marked the tenth consecutive month of decline in Italy’s manufacturing activity .
Projected recovery:
The projected growth of the Italian economy has ranged from 0.7 to 1.1 %. Istat anticipated a GDP growth of 1.1% in 2025, slightly up from the 1% projected earlier for 2024, while the EU Commission projected a 1% GDP growth in 2025, with an acceleration to 1.2% in 2026, and the central bank adjusted its growth forecast to 0.7% for both 2024 and 2025, citing a slowdown in the industrial sector and broader economic challenges.
This growth was expected to be primarily driven by domestic demand and increased consumption and investment, particularly supported by easier financing conditions and continued spending from the EU Recovery Fund.
Household consumption was projected to increase, driven by positive real wage dynamics and improved job opportunities. Combined with a projected decrease in unemployment rate from 7.7% in 2023 to 6.2% in 2026 and a tight labour market, this recovery was expected to support wage increases.
Economic and industrial Stagnation:
Yet, these signs of recovery face a number of domestic and foreign challenges. The anticipated growth in 2025 is heavily reliant on domestic consumption which remains contingent on fluctuations in consumer confidence or spending. Italy’s gross public debt is expected to rise to 139.3% of GDP in 2026, up from 134.8% in 2023, driven by the lagged impact of housing renovation tax credits accrued in the deficit until 2023.
Besides this contingency on consumer behavior, which puts at stake any prospects of growth, Italy’s economy recorded zero growth in both the third and fourth quarters of 2024, falling short of earlier expectations. This stagnation raises concerns about achieving the government’s 2025 growth forecast of 1.2% and explains the caution of the central bank and the revision of several growth projections.
For example, according to the estimates of the Observatory of Italian public finance (OCPI) of Milan’s Catholic University, released on Saturday, Italy’s GDP growth projection has been revised down to 0.4% for 2025, compared to earlier ISTAT’s GDP data estimates of higher growth. The deficit is also expected to rise from 3.3% to 3.6% of GDP, and public debt is projected to increase to 138.4% of GDP.
Another obstacle is the contraction in the manufacturing sector. The HCOB Global Purchasing Managers’ Index (PMI) for manufacturing registered at 46.3, slightly up from December’s 46.2 is still below the contraction threshold of 50. Elevated energy costs, mostly caused by geopolitical tension, and weak demand from key trading partners, including Germany, France, and China, have contributed to this downturn and might exacerbate it in the future.
