Italy/Economy

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The Italian economy has changed dramatically since the end of World War II. From an agriculturally based economy, it has developed into an industrial state ranked as the world's fifth-largest industrial economy. Italy belongs to the Group of Eight (G-8) industrialized nations; it is a member of the European Union and the OECD.

Italy has few natural resources. With much of the land unsuited for farming, it is a net food importer. There are no substantial deposits of iron, coal, or oil. Proven natural gas reserves, mainly in the Po Valley and offshore Adriatic, have grown in recent years and constitute the country's most important mineral resource. Most raw materials needed for manufacturing and more than 80% of the country's energy sources are imported. Italy's economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. Its major industries are precision machinery, motor vehicles, chemicals, pharmaceuticals, electric goods, and fashion and clothing.

Italy is in the midst of a slow economic recovery and is gradually catching up to its west European neighbors. Italy's economy accelerated from anemic 0.7% growth in 1996 to 1.4% in 1999 and continued to rise to about 2.9% in 2000, which is closer to the EU projected growth rate of 3.1%. Domestic demand and exports were the dominant factors in GDP growth, but it nevertheless remains one of the lowest among industrialized countries.

Import growth continues to outpace export growth, resulting in a trade surplus in 2000 of $1.3 billion, down from $14 billion in 1999 and $60 billion in 1996.

With respect to inflation, Italy is now firmly within norms specified for Economic and Monetary Union (EMU), a major achievement for this historically inflation-prone country. Consumer inflation fell from 3.9% in 1996 to 1.7% in 1999 but did rise again to 2.5% in 2000. The 1992 agreement on wage adjustments, which has helped keep wage pressures on inflation low, remains in effect. Tight monetary policy by the Bank of Italy also has helped bring inflation expectations down.

Since 1992, economic policy in Italy has focused primarily on reducing government budget deficits and reining in the national debt. Successive Italian governments have adopted annual austerity budgets with cutbacks in spending, as well as new revenue raising measures. Italy has enjoyed a primary budget surplus, net of interest payments, for the last 7 years. The deficit in public administration declined to 1.4% of GDP in 2000, down from 7% in 1995. Italy joined the European Monetary Union in May 1998. The national debt, which stood at roughly 124% of GDP in 1995, is declining steadily and is expected to meet the EU-imposed deficit to GDP ratio of 1.5% by 2006.

Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 59% of its total trade. Italy's largest EU trade partners, in order of market share, are Germany (19%), France (13%), and the Netherlands (6%).

U.S.-Italy Economic Relations
The U.S.-Italian bilateral relationship is strong and growing. The U.S. and Italy cooperate closely on major economic issues, including within the G-8, which met in Genoa in July 2001. With a large population and a high per capita income, Italy is one of the United States' most important trade partners. In 2000 the United States was the fifth-largest foreign supplier of the Italian market and the largest supplier outside the EU. Total trade between the United States and Italy exceeded $33 billion in 1999. The U.S. ran a $12.1 billion deficit with Italy in 2000.

Significant changes are occurring in the composition of this trade. More value-added products such as office machinery and aircraft are becoming the principal U.S. exports to Italy. The change reveals the growing sophistication of the Italian market, and bilateral trade should expand further. In 2000 the United States imported about $24.5 billion in Italian goods while exporting about $12.4 billion in U.S. goods to Italy. U.S. foreign direct investment in Italy at the end of 1999 exceeded $14.1 billion.

Labor
Unemployment has been steadily decreasing but remains high (10% in December 2000, it lowest level since 1992). It is especially severe in the south where average unemployment exceeded 20% this year. Women and youth have significantly higher rates of unemployment than do men. A rigid labor market serves as a disincentive to job creation. There is a significant underground economy absorbing substantial numbers of people, but they work for low wages and without standard social benefits and protections.

Unions claim to represent 40% of the work force. Most Italian unions are grouped in three major confederations--the Italian General Confederation of Labor (CGIL), the Italian Confederation of Labor Unions (CISL), and the Union of Italian Labor (UIL), which together claim 35% of the work force. These confederations formerly were associated with important political parties or currents, but they have formally terminated such ties. Nowadays, the three often coordinate their positions before confronting management or lobbying the government. The three major confederations have an important consultative role on national social and economic issues. Among their major agreements are a 4-year wage moderation agreement signed in 1993, a reform of the pension system in 1995, and an employment pact, introducing steps for labor market flexibility in economically depressed areas, in 1996. The CGIL, CISL, and UIL are affiliates of the International Confederation of Free Trade Unions.

Agriculture
Italy's agriculture is typical of the division between the agricultures of the northern and southern countries of the European Union. The northern part of Italy produces primarily grains, sugarbeets, soybeans, meat, and dairy products, while the south specializes in producing fruits, vegetables, olive oil, wine, and durum wheat.

Even though much of its mountainous terrain is unsuitable for farming, Italy has a large work force (1.4 million) employed in farming. Most farms are small, with the average farm only 7 hectares.

GDP: purchasing power parity - $1.212 trillion (1999 est.)

GDP - real growth rate: 1.3% (1999 est.)

GDP - per capita: purchasing power parity - $21,400 (1999 est.)

GDP - composition by sector:
agriculture: 2.6%
industry: 31.6%
services: 65.8% (1998)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 2.9%
highest 10%: 23.7% (1991)

Inflation rate (consumer prices): 1.7% (1999 est.)

Labor force: 23.193 million

Labor force - by occupation: services 61%, industry 32%, agriculture 7% (1996)

Unemployment rate: 11.5% (1999 est.)

Budget:
revenues: $530 billion
expenditures: $522 billion, including capital expenditures of $NA (1999 est.)

Industries: tourism, machinery, iron and steel, chemicals, food processing, textiles, motor vehicles, clothing, footwear, ceramics

Industrial production growth rate: 1.9% (1998 est.)

Electricity - production: 243.027 billion kWh (1998)

Electricity - production by source:
fossil fuel: 80.22%
hydro: 17.3%
nuclear: 0%
other: 2.48% (1998)

Electricity - consumption: 266.705 billion kWh (1998)

Electricity - exports: 900 million kWh (1998)

Electricity - imports: 41.59 billion kWh (1998)

Agriculture - products: fruits, vegetables, grapes, potatoes, sugar beets, soybeans, grain, olives; beef, dairy products; fish

Exports: $242.6 billion (f.o.b., 1998)

Exports - commodities: engineering products, textiles and clothing, production machinery, motor vehicles, transport equipment, chemicals; food, beverages and tobacco; minerals and nonferrous metals

Exports - partners: EU 56% (Germany 16.5%, France 12.7%, UK 7.2%, Spain 5.8%, Netherlands 2.9%), US 8.5% (1998)

Imports: $206.9 billion (f.o.b., 1998)

Imports - commodities: engineering products, chemicals, transport equipment, energy products, minerals and nonferrous metals, textiles and clothing; food, beverages and tobacco

Imports - partners: EU 61% (Germany 18.8%, France 13.12%, UK 6.47%, Netherlands 6.2%, Belgium-Luxembourg 4.7%), US 5.1% (1998)

Debt - external: $45 billion (1996 est.)

Economic aid - donor: ODA, $1.3 billion (1997)

Currency: 1 Italian lira (Lit) = 100 centesimi

Exchange rates: euros per US$1 - 0.9867 (January 2000), 0.9386 (1999); Italian lire (Lit) per US$1 - 1,688.7 (January 1999), 1,736.2 (1998), 1,703.1 (1997), 1,542.9 (1996), 1,628.9 (1995)
note: on 1 January 1999, the EU introduced a common currency that is now being used for non-cash transactions in some member countries at a fixed rate of 1,936.27 lire per euro; the euro will replace the local currency in consenting countries for all transactions in 2002

Fiscal year: calendar year