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Italy is a parliamentary republic with a Prime Minister and a President. Italy, the third largest economy of the Eurozone, was still recovering from the debt and financial crisis, when the Covid-19 epidemic occurred. Real GDP plunged by 8.9% in 2020, recording one of the biggest contractions in Europe. The Covid-19 crisis is likely to have amplified the structural weaknesses of the Italian economy, which is widely seen as a low-potential growth economy with structural weaknesses. Several restrictions on both labour and production and the huge level of public debt are weighing on productivity, investment and activity growth. An imperfect match of the skills of the working population to market need and low R&D spending also affect growth.

The Italian commercial sector is characterised by family-owned companies that offer particular specialisation, often grouped into industrial districts. However, most Italian firms are small and suffer from weak productivity, which made them particularly vulnerable to the coronavirus crisis. Investment is structurally low and Italy’s integration in global value chains remains limited.