Economy of Italy

The Italian economy has changed dramatically since the end of World War II. From an agriculturally based economy, it has developed into an industrial country ranked as the world's fifth-largest economy in USD exchange-rate terms and eighth largest in terms of purchasing power parity (PPP). Italy belongs to the Group of Eight (G-8) industrialised 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 entered an economic crisis in 2004, with GDP growth at about zero, although GDP has started to grow again as of 2005. Previously, Italy's economy had accelerated from 0.7% growth in 1996 to 1.4% in and continued to rise to about 2.9% in , which was 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 industrialised countries. Since , growth has gradually slowed, reaching recession conditions. The opposition blamed Silvio Berlusconi's government for incompetence, especially the minister of economy Giulio Tremonti. A report of the Economist, entitled Addio, dolce vita ('Farewell, dolce vita') paralleles current status of Italian economy to that of the Republic of Venice in , a country with 'many attractions' but living 'a slow, long decline'. The administration of the public finances is defined there as 'terrific', and Italy is called 'the real sick man of Europe'. The government's stance has been to blame the difficulties on the international situation, especially on the September 11, 2001 Attacks.

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

With respect to inflation of forms, 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 1999, a combination of the introduction of the euro and a house price boom are blamed for a rate of inflation estimated by academics as at least 15%, although officially it is around 2.5% . Most Italians maintain that with the euro, prices doubled overnight.

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 Economic and Monetary Union in May 1998. The national debt, which stood at roughly 124% of GDP in 1995, declined steadily until about 2002, but is raising again because of slow growth. The deficit-to-GDP ratio is likely going to be higher than the EU limit of 3.0% in , and estimates of up to 5.1% have appeared.

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%).

Labor

Unemployment has been steadily decreasing but remains high (8.6% in 2003, its lowest level since 1992). It is especially severe in the south, where average unemployment can exceed 20%. Women and youth have significantly higher rates of unemployment than men. In past years, some claimed the rigid labor market was a disincentive to job creation. After a series of unpopular flexibility measures were passed, employment improved somewhat, but there have been reports of many companies abusing these measures in a series of ways, in order to force employees to work more hours than legal, and providing less secure jobs. There is a significant underground economy, especially in the south where it partially justifies the high official unemployement rate, absorbing substantial numbers of people, working 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 (respectively the Italian Communist Party, the Christian Democracy and the Italian Socialist Party), 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 , a reform of the pension system in , and an employment pact, introducing steps for labor market flexibility in economically depressed areas, in . The CGIL, CISL, and UIL are affiliates of the International Confederation of Free Trade Unions. Of the three unions, CGIL is the strongest in numbers. CGIL once single-handedly organized a three-million people rally in Rome.

Italy's employers are represented by Confindustria, the Italian Employers' Federation.

Industry

Northern and Northwest Italy have traditionally made up the core of Italian industry. Key benefits include easy trade with the rest of Europe, hydroelectricity from the Alps, and workable, flat land. The FIAT factory, for example, is located in Turin.

Agriculture

The northern part of Italy produces primarily grains, rice, corn, 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. In other words, there is not a lot of farming because of the region.

Italian exports

Italy's main exports are in the fields of food, clothing, and luxury cars. Famous Italian foods have been brought to the rest of the world through Italian emigration, especially to the United Kingdom, Canada and Australia. Italian foods include a multitude of pasta dishes (originating in 1500s Italy), pizza (born in 1800s Naples), ice cream, parma ham, rice, parmesan cheese and wine. The most famous Italian wines are probably the Tuscan Chianti and Piedmontese Pinot Grigio.

Quality goods in which Italy specialises are often DOC or 'of controlled origin'. This DOC certificate, which is attributed by the European Union, ensures that the origins and work that goes into a product are recognised. This certification is considered important by producers and consumers alike, in order to avoid confusion with low-quality mass-produced ersatz products, such as Cambozola, a German copy of Gorgonzola.

Italy is known also for its fashion houses; Versace, Valentino, Fendi, Gucci, Prada, Cavalli, Sergio Rossi, Dolce & Gabbana, Benetton, Armani and others.

Ferrari, Maserati Lamborghini but also Alfa Romeo are all associated with top-of-the-line carmaking, but the main Italian car producer, FIAT, has a mediocre reputation in Italy and abroad.