Italy’s economy is growing more than expected. According to a report released by CSC, the Research Unit of Italy’s business lobby Confindustria, the country’s GDP will grow by 6.1% this year and by 4.1% next year. In April the research unit had said Italy’s GDP would be up 4.1% in 2021.

Confindustria's forecast on Italy's economic recovery.
Confindustria’s forecast on Italy’s economic recovery. Courtesy of Centro Studi Confindustria.

According to the CSC report, this upward revision of the GDP growth forecast is mainly due to a more contained impact of the COVID-19 Delta variant (thanks to the country’s effective vaccination campaign) and stronger-than-expected economic indicators. Last year the COVID-hit economy contracted by 8.9%. The robust growth of GDP in the 2021-2022 period, with a 10% increase, is set to bring Italy’s economy above pre-pandemic levels in the first half of 2022, sooner than expected.

Moreover, as the Financial Times reports, Italy is growing faster than all the other G7 countries. Excellent news for Mario Draghi’s government, which was therefore able to approve an expansionary budget designed to cut  income and corporate taxes and boost investment.

italy: industrial production restarts

As the CSC report highlights, investment is the main engine of the Italian recovery. By 2022 investment is expected to rise above pre-pandemic levels (+17.7% compared to 2019). So far, the main contribution has come from investments in construction, driven by the country’s unprecedented building renovation plan. Next Generation EU funds are expected to further boost economic growth in the near future.

The CSC report shows encouraging data also on industrial production, which reached pre-pandemic level in June, and exports of goods and services, which after a fall of -14.0% in 2020 will rise by 12.4% in 2021 and by a further 7.7% in 2022.

The employment rate has been showing signs of a recovery too. The number of employees hit a record low during the 1st quarter of 2021, but then started growing back, recording an increase by 81000 units in the July-to-September period (full recovery is expected for 2022). At the same time, inflation has been growing at a more moderate pace than in other European countries and it is expected that it will stabilize around an annual growth rate of 1.8% in 2021.

The presentation of Centro Studi Confindustria’s report

Finally, CSC data show a recovery in consumption and services. Consumption is replacing exports as a driving force for the country’s recovery.

However, the report also highlights some downside risks, linked to high levels of uncertainty. First of all, the lack of raw materials and higher prices could bog down production.

Furthermore, the CSC scenario predicts that in 2022 private consumption will remain well below pre-crisis levels (-3.7% compared to 2019). And although the export of goods has been hitting record numbers, the export of services will only start recovering next year.

italian exports

Finally, the possibility of new COVID-19 restrictions and more structural inflation are listed among the potential risks for the stability of the Italian economy.

Confindustria President Carlo Bonomi said that recovery was well underway but that it was important to “keep the guard up“. “Italy must go back to growing at a yearly pace of at least 1.5-2%, an achievable goal, equal to the annual growth registered between 1997 and 2007,” he said.