Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Basic data
During 2020, Italy lost 9% of its GDP due to the pandemic. During 2021, GDP growth was 6.5% and the economy recovered. The end of 2021 brought positive expectations and optimistic estimates, but the beginning of 2022 was associated with the rise in energy prices (+723% compared to 2019), inflation and the war in Ukraine, and the resulting reduction in estimates from 4.7% to 2.2% growth GDP in 2022. The inflation rate is estimated at 5.8% for 2022 and is expected to decrease to 2.1% in 2023. Core inflation remains at low levels, but only at the cost of slashing producers’ margins. Unemployment was 9.5% in 2021 and should decrease to 8.7% during 2022, but youth unemployment in Italy is high (24.5%). Check ebizdir for economical facts of Italy.
The pillar of economic development is the National Recovery and Resilience Plan (PNRR). Italy received the largest part of the EU Recovery Fund for economic recovery after the pandemic, in the amount of 19 billion euros (69 billion euros in grants and 12 billion euros in loans). Italy will add another 30 billion euros from its own funds to implement the set goals. In total, roughly 22 billion euros will be available in the next six years. The plan is divided into six investment areas: digitization, innovation, competitiveness and culture, green revolution and ecological transition, infrastructure for sustainable mobility, education and research, social inclusion, health. The current concurrence of crises may lead to a revision of some of the objectives of the Recovery Plan. Environmental goals are also at risk when postponing the use of coal is being considered.
| Pointer | 2019 | 2020 | 2021 | 2022 | 2023 |
| GDP growth (%) | 0.3 | -8.9 | 6.5 | 2.9 | 2 |
| GDP/population (USD/PPP) | 45,520.20 | 41,249.40 | 45,400.50 | 49,480.00 | 51,840.0 |
| Inflation (%) | 0.6 | -0.1 | 1.9 | 5.8 | 2.1 |
| Unemployment (%) | 9.9 | 9.3 | 9.5 | 8.7 | 8.0 |
| Export of goods (billion USD) | 539.8 | 470.4 | 684.1 | 728.9 | 752.1 |
| Import of goods (billion USD) | 476 | 405.5 | 604.8 | 656.5 | 682 |
| Trade Balance (Billion USD) | 63.9 | 78.5 | 88.6 | 83.3 | 81.8 |
| Industrial production (% change) | -1.1 | -11 | 11.3 | 3.4 | 2 |
| Population (millions) | 59.6 | 59.6 | 59.2 | 59.1 | 58.9 |
| Competitiveness | 44/63 | 44/63 | 41/64 | ON | ON |
| OECD export risk | ON | ON | ON | ON | ON |
Source: EIU, OECD, IMD, ISTAT, IT Bank
Public finance and state budget
| Public finance | 2021 |
| State budget balance (% of GDP) | -9 |
| Public debt (% of GDP) | 152.6 |
| Current account balance (billion USD) | 80 |
| Taxes | 2022 |
| PO (%) | 24 |
| FO (%) | 27-43 |
| VAT (%) | 22 |
The public finance deficit is set at 5.1% for 2022 and will then decrease to 2.7% of GDP in 2025. There is scope for expansionary measures (0.5% of GDP for this year, 0.2% in 2023 and 0.1% in 2024 and 2025). The government will use this space to adopt a number of measures, in particular to limit the impact of rising fuel and energy prices on households and production, to strengthen guarantees for businesses’ access to credit, and to integrate resources to offset the increase in public project costs. Program growth will thus be slightly higher than trend growth, especially in 2022 and 2023 (3.1% and 2.4%), which will have a positive effect on the development of employment. The debt-to-GDP ratio will decrease from 152.6% in 2021 to 147.0% this year, and then gradually fall to 141.4% in 2025. For now, spending to reduce the impact of rising energy prices is covered by the government from cuts in ministry spending (billion
On the basis of the positive results of public finances achieved in 2021, the forecast of net borrowing under unchanged legislation for 2022 is adjusted from 5.6% to 5.1% of GDP. The downward revision is primarily due to higher tax and current revenues, which offset higher estimates for current and capital expenditures. The tax burden calculated according to national accounts criteria is expected to fall from 43.5% in 2021 to 43.1% of GDP in 2022. If taxes and social security contributions are taken into account as expenditure measures, the actual tax burden is actually lower and slightly decreasing from last year’s 41.7% to this year’s 41.2%. As for the next three years, the balance of payments account under unchanged legislation will benefit from a significant reduction in primary current expenditure relative to GDP (from 45% in 2022 to 42% in 2025) as well as interest expenditure (from 3,
Banking system
Italian banking has undergone consolidation and mergers of banks with the participation of foreign investors who contributed to the increase of capital and the introduction of new technologies and products. Italy is present in the world with more than 80 banking entities and over 40 foreign banks are represented in Italy. The specifics of the Italian banking sector remain the lower market share of large banks and the existence of many smaller banking institutions. In Italy, the 5 largest banks control only 36% of the financial market. Only a small number of foreign banks hold a majority stake in Italian banks. Within the EU, this share is lower only in Germany, where it reaches 29%. Currently, on Italian territory, 79% of bank deposits are managed by Italian banks and 21% of deposits by foreign banking houses.
Credit and savings supervision is carried out by the CICR Ministerial Committee for Credit and Savings, which falls under the Ministry of Finance of the Italian Republic. Ignazio Visco has been the governor of the Bank of Italy since 2011. The bank supervises banking institutes and financial intermediaries, oversees the financial markets – especially the interbank market and the government bond market, assists with the supervision of the payment system, represents Italy at the ECB, the IMF and the World Bank, acts as an advisory body to the Italian government for credit questions and money-financial issues. Its shareholders are: Italian banks, insurance companies and state institutions. The bank provides banking services to the public administration (mainly for the purpose of managing the state treasury). The Bank of Italy, like other national central banks, holds a stake in the capital of the ECB.
The National Commission for Companies and the Stock Exchange CONSOB (Commissione Nazionale per le Societa e la Borsa) performs capital supervision over the securities markets with the aim of ensuring investor protection, efficiency and market transparency.
The strongest Italian banks:
- Intesa San Paolo. This Piedmontese institution is one of the most important banks in Europe and ranks first in Italy in terms of number of branches and market share. The shares are among the best in the FTSE Mib index of the Milan Stock Exchange. Market capitalization: EUR 29.50 billion.
- UniCredit. A Milanese institution considered one of the most important Italian and European banking groups. Based in Milan, it is number one in Italy in terms of assets under management and has more than 26 million customers in almost 40 countries. Market capitalization: EUR 18.36 billion.
- Fineco Bank. The bank is considered one of the most innovative and digitized banks on the Italian scene. It also operates in the investment and trade sector (in which it is the leader with a 24.75% share in Italy). Market capitalization: EUR 7.33 billion.
- Mediobanca. Based in Milan, it was founded in 1946. It is listed on several European stock exchanges, including Italian, French, German and Spanish. It controls Compass, Italy’s leading provider of personal loans and microfinance. Market capitalization: EUR 6.32 billion.
- Banca Mediolanum. Listed on the FTSE MIB, the most important index of the Milan Stock Exchange. It operates in the field of banking services, but also in insurance and asset management. Market capitalization: EUR 4.74 billion.
Tax system
The Italian tax system is progressive. The collection of taxes is entrusted to the tax authorities (Agenzia d’Entrate), which also issue the tax identification number “Codice fiscale” to residents, natural and legal persons. It assigns VAT payers a special tax identification number for VAT or “Partita IVA” (IVA – Imposta sul valore aggiunto). Negotiations with foreign companies are the responsibility of the financial office in the city of Pescara. Instructions for foreigners in English are available on the website of the Italian Tax Office.
Overview of basic taxes
Personal income tax (IRPEF – Imposta sul reddito delle persone fisiche) – governed by the unified Italian tax regulation TIUR (Testo Unico delle Imposte sui Redditi). Individuals, residents and non-residents are subject to income tax. Residents are taxed on their worldwide income, non-residents only on income earned in Italy. Taxable income is taxed at a progressive rate ranging from 27% to 43%.
Corporate income tax (IRES – Imposta sul reddito delle società) – governed by TIUR standards. Companies based in Italy are subject to corporate income tax both in Italy and abroad. Companies without a registered office in Italy are subject to tax on income obtained in the territory of Italy. Taxable income is subject to a rate of 24%.
Value added tax (IVA – Imposta sul valore aggiunto) The Italian rules for calculating and collecting value added tax are based on the relevant EU directives. The tax is usually paid by the final consumer. VAT payers can deduct the taxes they have paid from their VAT account. VAT ultimately burdens the final consumer in the form of a percentage markup on the final price of goods or services. The basic VAT rate has been 22% since October 2013 (reduced rates for selected types of services and goods are 10 and 4%).
Territorial business tax (IRAP – Imposta regionale sulle attività produttive) – a local tax on the value of production created in the relevant region for a certain period. Income from this tax goes to the budgets of individual regions.
The Italian government is preparing a tax reform. It should provide for the transitional introduction of two rates for income from the use of capital, including income from the real estate market. These rates should be 15% and 26%, respectively, while government bonds should be taxed at 12.5%. Other changes should concern the introduction of a transitional fixed taxation regime lasting two years and aimed at self-employed persons who exceed the annual ceiling for the application of the 15% flat-rate tax, i.e. income up to €65,000.
