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World > Europe > Italy > Economy (Notes)

Italy - Economy (Notes)


ECONOMY
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 sixth-largest market economy. Italy belongs to the Group of Eight (G-8) industrialized nations; it is a member of the European Union and the Organization for Economic Cooperation and Development (OECD).

Italy has few natural resources. With much land unsuited for farming, Italy 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, 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's economic growth averaged only 0.66% for the five years ending in 2005; 2006 GDP growth reached 1.9%, largely due to export growth to the Euro zone area.

Italy continues to grapple with excessive budget deficits and high public debt--4.3% and 108% of GDP expected for 2006, respectively. Italy joined the European Monetary Union in 1998 by signing the Stability and Growth Pact, and as a condition of this Euro zone membership, Italy must keep its budget deficit beneath a 3% ceiling. In June 2006, the European Commission warned Italy it had to bring the deficit down to that level by 2007. The budget passed in December 2006 raised sufficient revenues to make that target, even though the budget was derided by many as having no stimulus for growth.

Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 54.4% of its total trade (2002 data). Italy's largest EU trade partners, in order of market share, are Germany (15.5%), France (11.6%), and the United Kingdom (5.9%). Italy continues to grapple with the effects of globalization, where certain countries (notably China) have eroded the Italian lower-end industrial product sector.

The Italian economy is also affected by a large underground economy--worth some 27% of Italy?s GDP. This production is not subject, of course, to taxation and thus remains a source of lost revenue to the local and central government.

U.S.-Italy Economic Relations
The United States and Italy cooperate closely on major economic issues, including within the G-8. With a large population and a high per capita income, Italy was the United States' eleventh-largest trading partner in 2005, with total bilateral trade of $42.5 billion comprised of exports to Italy totaling $11.5 billion and imports from Italy worth $31.0 billion. The U.S. ran a $19.5 billion deficit with Italy in 2005, up from $17.4 billion in 2004. Part of this imbalance has been due to a strong dollar. Significant changes are occurring in the composition of this trade. Value-added products such as office machinery and aircraft are becoming important U.S. exports to Italy. U.S. foreign direct investment in Italy at the end of 2004 exceeded $33.3 billion.

Labor
Unemployment is a regional issue in Italy--low in the north, high in the south. The overall national rate is at its lowest level since 1992. Chronic problems of inadequate infrastructure, corruption, and organized crime act as disincentives to investment and job creation in the south. A significant underground economy absorbs substantial numbers of people, but they work for low wages and without standard social benefits and protections. Women and youth have significantly higher rates of unemployment than do men.

Unions claim to represent 40% of the work force. Most Italian unions are grouped in four major confederations: the General Italian Confederation of Labor (CGIL), the Italian Confederation of Workers' Unions (CISL), the Italian Union of Labor (UIL), and the General Union of Labor (UGL), which together claim 35% of the work force. These confederations formerly were associated with important political parties or currents, but they have evolved into fully autonomous, professional bodies. The CGIL, CISL, and UIL are affiliated with the International Confederation of Free Trade Unions (ICFTU) and customarily coordinate their positions before confronting management or lobbying the government. The confederations have had an important consultative role on national social and economic issues.

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 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 size being only seven hectares.

For further economic and commercial information, please refer to the Country Commercial Guide for Italy.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Euro Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Foreign Relations - Relations with U.S.



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Notes and Commentary
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