Italian economy: growth slows amid US tariffs and EU fund delays
Why the italian economy faces slower growth
Italy’s economy expanded by just 0.7% in both 2023 and 2024 – below its 1% medium-term potential and underperforming the eurozone average (0.9%). Despite post-pandemic resilience, new risks from global trade tensions and EU fund deployment delays are set to drag growth further through 2026.
US tariffs could stall key export sectors
A 20% US tariff on EU goods could cut Italy’s GDP by 0.5-1pp between 2025-27. Key exposed sectors include:
Pharmaceuticals, Automotive, Luxury goods
- Pharmaceuticals: Lower price sensitivity may soften tariff impact
- Automotive & Machinery: Higher exposure to pricing pressures
- Luxury & Apparel: At risk, except high-end segments with inelastic demand
Italy exported €65bn in goods to the US in 2024 (10.4% of total exports), with 7% of manufacturing output US-bound. Trade retaliation from China or the EU could deepen the slowdown.
EU recovery funds: delays reshape growth timeline
Despite receiving 63% of the €194.4bn allocated, Italy has only spent 30% of these funds by end-2024.
Spending gaps undermine stimulus
- €58.6bn spent by late 2024
- €125bn allocated to project implementation
- Remaining €70bn to be committed by 2026
The projected impact of the recovery plan on GDP was revised down:
- 2021–24: from +2.4pp to +1pp
- 2025–26: potential +2.7pp—if over €100bn is spent (unlikely)
Structural reforms needed to sustain growth and manage debt
Italy’s public debt stood at 135.3% of GDP by end-2024. Key reforms include:
Priorities for long-term stability
- Judicial reform
- Public procurement modernization
- Competition law and administrative streamlining
These reforms are critical to boosting productivity, attracting investment, and improving Italy’s export resilience.
Italian economy at a crossroads
In the near term, the Italian economy faces significant external and internal challenges. While structural strengths remain, sustained recovery depends on accelerating fund deployment, reducing trade exposure, and implementing long-awaited reforms.
Data sources: Confindustria, US tariffs
