Italy

Sluggish growth driven by private consumption

Even though the Italian economy is struggling to regain momentum amid a manufacturing industry on the wane, it should still make a timid recovery in 2025. Growth will be driven mainly by household consumption, which will benefit from a stronger labour market on back of a jobless rate that dipped below 6% at the end of 2024 for the first time since 2007. The prolongation of reductions in social security contributions and income tax planned in the 2025 State Budget will continue to support the purchasing power of low- and middle-income workers. Purchasing power will also continue to recover thanks to moderate inflation and wage growth, which already boosted households’ real disposable income in 2024. The sharp rise in the household savings rate since the end of 2023, to 12% of disposable income in Q3 2024 (vs. 11% on average between 2015 and 2019), should gradually normalise and support household spending. Second, investment is likely to grow marginally in 2025 as the generous Super-Bonus (subsidies introduced in 2020 to renovate buildings to improve their energy efficiency) is phased out, continuing to penalise investment in residential construction. The decline will outweigh the enhanced prospects for non-residential construction, which should benefit from the resources of the National Recovery Plan and more favourable bank lending conditions. Investment could benefit from the acceleration of disbursements of European funds if the government manages to implement them effectively.

In addition, external demand will pick up gradually, but it will be offset by a significant rise in imports due to the recovery in domestic demand. Exports of services should remain buoyant, thanks in particular to tourist demand which continues to trend positively, albeit at a much slower rate than in previous years. In the first eleven months of 2024, the share of international arrivals booking tourist accommodation grew by around 1% annually, versus over 30% in 2023 compared to 2022. The Italian economy will continue to be exposed to the fragile demand and recovery of its European neighbours, while over 55% of its exports of goods go to the rest of the EU. Moreover, the US represents Italy's largest trade surplus and its second-largest export market after Germany. Italy's manufacturing industry (representing almost 15% of GDP) would be significantly exposed if the new Trump administration were to introduce tariffs. This applies in particular to machinery and other capital goods, especially electrical goods, pharmaceuticals, shipbuilding and automobiles, which together account for more than half of exports to the US.

Fragile budget consolidation

While Italy has the second-highest public debt ratio in Europe after Greece, the country is facing even greater budgetary challenges since it was placed under the excessive deficit procedure by the European Commission in the summer of 2024. Unlike Greece, where debt is largely held by public creditors, the majority of Italian debt (70%) is held by residents, a quarter of which is held by the Bank of Italy. Despite this, the budget plan approved by the Senate at the end of 2024 forecasts a smaller contraction in the deficit than would be the case had policy remained unchanged. The reason for this is that the plan provides for stimulus totaling EUR 30 billion in 2025. More than half of the amount will be used to finance the permanent merging of the first two income tax brackets (IRPEF) and the reduction of the tax wedge for households with an income of up to EUR 40,000 a year to support their purchasing power and stimulate consumption to collect more revenue in return. These additional revenues are nevertheless based on a more optimistic economic outlook from the government, which is forecasting 1.2% growth in 2025 after 1% in 2024. It also hopes to finance these measures by not renewing tax relief for employment in southern Italy (an average of EUR 4.7 billion a year), reviewing government spending (EUR 3.9 billion), postponing tax credits for banks (EUR 3 billion in 2025) and changing the way stamp duty is paid by national insurance companies (EUR 970 million in 2025). In addition, budgetary consolidation will also result from the reduction in Superbonus renovation premiums. However, despite the gradual withdrawal of this incentive, it will remain a burden on public finances over the next few years since the tax credits granted since 2024 must be claimed back in equal shares over ten years.

Although the situation has improved, Italian banks remain heavily exposed to domestic sovereign debt, which represents around 9% of assets (down from the pandemic peak of 12%, and well above the eurozone average of 4%). Furthermore, the banking system is well capitalised (a CET1 ratio of 16%), highly liquid (net stable funding ratio of 134%) and has a solid asset portfolio (non-performing loan ratio of 3% in Q3 2024). The state, however, is exposed to the private sector through contingent liabilities, which amount to 16% of GDP, the vast majority of which is related to Covid. Nevertheless, sovereign risk is greatly mitigated by the ECB's willingness to buy Italian bonds under pressure, provided the government meets the fiscal and reform conditions agreed with the EU.

Furthermore, the moderation in energy prices has recently made it possible to restore Italy's current account surplus since 2024 through an increase in the surplus on trade in goods. The current account surplus will continue this positive trend in 2025 but should remain below pre-pandemic levels (2015-2019 average close to 2.5% of GDP) due to the rise in imports induced by a revival in domestic demand, structurally higher energy prices and durably weak external demand. Although Italy benefits from a strong tourism sector generating a relatively stable surplus, its services balance will remain slightly in deficit.

Confirmation of political stability

Following the fall of the technocratic Draghi government in July 2022, the right-wing coalition secured a comfortable victory (43% of the vote, with 237 seats out of 400 in the Lower House) in the snap elections of September 2022. Giorgia Meloni became Prime Minister in the wake of the 2022 elections and her Brothers of Italy (Fratelli d’Italia) party scored well ahead of rivals, obtaining 26% of the vote. She was joined by Forza Italia (8% of the vote) and Lega (9%). After a long period of political volatility characterised by a series of unstable coalitions, Giorgia Meloni has managed to consolidate strong support from Italy's conservative political forces. Her popularity on the Italian political scene was confirmed in the European elections of June 2024, when her party came out on top with almost 29% of the vote, followed by the Social Democratic Party with 24%. Faced with little opposition from the centrist and progressive parties (Partido Democratico and Movimento Cinque Stelle), the conservative coalition led by Meloni is expected to hold office until the end of its term in 2027. In addition, the Prime Minister is expected to continue forging ahead with a constitutional reform allowing the head of government to be directly elected, even though the bill was already passed by the Senate in June 2024.

The heavy reliance on EU funds to finance investment provides a strong incentive for the government to comply with EU conditions. Efforts to improve the business environment through structural reforms, fiscal consolidation and public investment should therefore continue. Italy will need to accelerate the rollout of these funds over the next two years if it is to benefit fully from the resources allocated to it until 2026. By the end of 2024, Italy had received EUR 122 billion, or 63% of the total allocated European resources of EUR 194.4 billion. However, if the political difficulty in deploying the funds remains as is, the accumulated backlog will result in a smaller economic stimulus than expected. While Italy was the EU member state that received the most funds at end-2024, it is still straggling when putting them to use: at October 2024, less than 50% of the funds already obtained had been spent. Italy was already among the European stragglers when absorbing funds from the 2014-2020 cohesion policy programme.

Relations with other EU members have been more collaborative than initially anticipated when Giorgia Meloni came to power. A persistent and somewhat considerable risk of tension over immigration and tax issues will remain. On the other side of the Atlantic, Giorgia Meloni's closer ties with Donald Trump could position the Italian Prime Minister as a moderator in forthcoming trade and political negotiations that have high stakes for Italy.

Payment

Trade notes (cambiali) are available in the form of bills of exchange or promissory notes. Cambiali must be duly accepted by the drawee and stamped locally at 12/1000 of their value, being issued and payable in the country. When issued in the country and payable abroad, they are stamped at 9/1000, and finally stamped at 6/1000 in the country if stamped beforehand abroad, with a minimum value of €0.50. In case of default, they constitute de facto enforcement orders, as the courts automatically admit them as a writ of execution (ezecuzione forzata) against the debtor.

Signed bills of exchange are a reasonably secure means of payment, but are rarely used due to a high stamp duty, the somewhat lengthy cashing period, and the drawee’s fear of damage to his reputation caused by the recording and publication of contested unpaid bills at the Chambers of Commerce.

In addition to the date and place of issue, cheques established in amounts exceeding €1,000 and intended to circulate abroad must bear the endorsement non trasferibile (not transferable), as they can only be cashed by the beneficiary. To make the use of cheques more secure and efficient, any bank or postal cheque issued without authorisation or with insufficient funds will subject the cheque drawer to administrative penalties and listing by the CAI (Centrale d’Allarme Interbancaria), which automatically results in exclusion from the payment system for at least six months.

Bank vouchers (ricevuta bancaria) are not a means of payment, but merely a notice of bank domicile drawn up by creditors and submitted to their own bank for presentation to the debtor’s bank for the purposes of payment (the vouchers are also available in electronic form, in which case they are known as RI.BA elettronica).

Bank transfers are widely used (90% of payments from Italy), particularly SWIFT transfers, as they considerably reduce the length of the processing period. Bank transfers are a cheap and secure means of payment once the contracting parties have established mutual trust.

Debt Collection

Amicable phase

Amicable collection is always preferable to legal action. Postal demands and telephone dunning are quite effective. On-site visits, which provide an opportunity to restore dialogue between supplier and customer with a view to reaching a settlement, can only be conducted once a specific licence has been granted.

Settlement negotiations focus on payment of the principal, plus any contractual default interest as may be provided for in writing and accepted by the buyer.

When an agreement is not reached, the rate applicable to commercial agreements is the six-monthly rate set by the Ministry of Economic Affairs and Finance by reference to the European Central Bank’s refinancing rate, raised by eight percentage points.

Legal proceedings

When creditors fail to reach an agreement with their debtors, the type of legal action taken depends on the type of documents justifying the claim.

Fast-track proceedings

Based on cambiali (bills of exchange, promissory notes) or cheques, creditors may proceed directly with forced execution, beginning with a demand for payment (atto di precetto) served by a bailiff, preliminary to attachment of the debtor’s moveable and immoveable property (barring receipt of actual payment within the allotted timeframe). The resulting auction proceeds are used to discharge outstanding claims.

Creditors can obtain an injunction to pay (decreto ingiuntivo) if they can produce, in addition to copies of invoices, written proof of the claim’s existence by whatever means or a notarized statement of account. A forty-day period is granted to the defendant to lodge an objection.

Ordinary summary proceedings (procedimento sommario di cognizione), introduced in 2009, are used for uncomplicated disputes which can be settled upon simple presentation of evidence. Sitting with a single judge, the court determines a hearing for appearance of the parties, and delivers a provisionally executory ruling if it acknowledges the merits of the claim; the debtor however has 30 days to lodge an appeal.

Ordinary proceedings

The creditor must file a claim with the court (citazione) and serve summons to the debtor, who will file a defence (comparsa di constituzione e risposta) within ninety days via a preliminary hearing. The parties then provide briefs and evidence to the court. When the debtor fails to bring a defence, the creditor is entitled to request a default judgment. The court will usually grant remedies in the form of declaratory judgments, constitutive judgments, specific performance and compensatory damages but it cannot award any damages which have not been requested by the parties.

Undisputed claims are typically settled within four months, but the timescale to obtain an enforceable court order depends on the court. Overall, disputed legal proceedings take up to three years on average.

The current civil procedure code is intended to speed up the pace of proceedings by reducing the procedural terms, imposing strict time limits on the parties for submitting evidence and making their cases, and introducing written depositions in addition to oral depositions.

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Enforcement of a Legal Decision

A judgment becomes enforceable when all appeal venues have been exhausted. If the debtor fails to comply with a judgement, the court can order compulsory measures, such as an attachment of the debtor’s assets or allowing the payment of the debt to be obtained from a third party (garnishee order) – although obtaining payment of a debt via the latter option tends to be more cost-effective.

For foreign awards, decisions rendered from a country in the EU will benefit from special procedures such as the EU Payment Order or the European Enforcement Order. Judgment from a non-EU country will have to be recognized and enforced on a reciprocity basis, meaning that the issuing country must be part of a bilateral or multilateral agreement with Italy.

Insolvency Proceedings

OUT-OF COURT PROCEEDINGS

The 2012 legal reform allows a debtor to file an application for composition by anticipation. Negotiation on an agreement commences 60 to 120 days prior to the initiation of judicial debt restructuration proceedings. The debtor retains control over the company’s assets and activities. A new pre-agreed composition plan may be agreed with the approval of creditors representing 60% of the debtor company’s debt.

RESTRUCTURING PROCEEDINGS

This settlement is a court procedure which allows a company in financial difficulty to propose a debt restructuration plan. The debtor files a proposal to the court to repay the total amount outstanding to the secured creditors. If the court admits it, a commissioner trustee is appointed, and if the majority of the unpaid creditors accept the proposal, the court will officially validate the proceedings.

Alternatively, a debt restructuring agreement (accordi di ristrutturazione del debito) aims to restructuring the debt so as to rescue the debtor company from bankruptcy proceedings. The debtor must file a report on its ability to pay the remaining creditors in full, who otherwise can challenge the agreement before a bankruptcy court by requiring verification that their claims will be paid as normal.

LIQUIDATION

This procedure aims to pay out the creditors by realising the debtor’s assets and distributing the proceeds to them. The status of insolvency justifies the adjudication of bankruptcy by the court, even where the insolvency is not due to the debtor’s misconduct. The court hears the evidences of the creditors’ claims and appoints a receiver to control the company and its assets. This receiver must liquidate all of the company’s assets and distribute the proceeds to the creditors to have the proceedings formally concluded.

Last updated: January 2025