Italian Industry, Eighth-Largest Manufacturing in the World; Second-Largest in Europe.
Industry 2025 Report: How Competitive is Italian Manufacturing?
The Confindustria Research Center’s snapshot of Italy’s new industrial geography
Italian manufacturing has always been the flagship of the national economy and continues to be one of the essential pillars of the country’s growth.
The Industry 2025 Report, developed by the Confindustria Research Center, stems from the need to provide a comprehensive, up-to-date, and comparable overview of the transformations that have affected industry over the last decade, in a context marked by economic, health, and geopolitical shocks.
At the heart of the analysis is the crucial issue of competitiveness: the Report examines in depth the strengths and weaknesses of our production system, on whose performance the country’s growth prospects depend.
A unique sector in the European landscape
Italian manufacturing presents characteristics that make it unique in the international context.
It is the most diversified production system in Europe and boasts a propensity for investment consistently higher than that of the continent’s other major economies.
Furthermore, in recent years, strengthening corporate capital has allowed Italy to align itself with the capitalization of German and French companies, potentially improving investment capacity, resilience, and competitiveness.
Another distinguishing feature is its strong openness to foreign markets: almost half of industrial production is destined for export.
Over the past decade, Italy has recorded export growth higher than that of its main European competitors, gaining share of international markets and generating a trade surplus that is crucial for current account balance.
The report confirms that the success of Italian industry abroad is increasingly due to product quality. Improvements are widespread, but particularly evident in highly innovation-intensive sectors such as pharmaceuticals.
The Unresolved Issue of Productivity
Alongside many positive elements, the report highlights a critical issue that has plagued Italian manufacturing for over thirty years: weak productivity growth.
Within the national economic system, industry is the most dynamic sector, but compared to other European manufacturing sectors, its performance is less brilliant, mainly due to a negative contribution from total factor productivity.
The causes are multiple.
First and foremost, the size structure: Italy has a very high share of micro and small businesses and, even among large ones, a smaller average size than its European competitors.
Yet, when looking at medium-large companies, an encouraging sign emerges: they are more productive than their German, French, and Spanish counterparts.
It is therefore the size distribution, rather than the quality of leading companies, that is holding back the potential of manufacturing as a whole.
Furthermore, growth in available physical capital remains weak, while the propensity to invest in intangible assets, which has increased significantly in recent years, is lower than that observed in other major manufacturing countries, especially with regard to investments in intellectual property.
Since 2015, Italian manufacturing productivity growth has shown signs of convergence with European competitors, thanks in part to the more favorable contribution of intangible capital and a finally positive contribution from total factor productivity.
Also significant are the qualitative transformation of the productive fabric, driven by an intense selection process that has reduced the number of microenterprises by almost 12%, and the concomitant growth in the average size of large companies and the aforementioned strengthening of capital.
This growth has been driven primarily by the most innovative companies, the so-called “frontier” firms.
At the same time, the gap between the most productive and the least productive firms has widened, and the movement of capital and labor toward higher value-added sectors has remained limited.
This has helped keep Italian specialization concentrated in medium- and low-tech sectors, while other European countries have moved more rapidly toward advanced production.
Finally, the crises of the last five years, first in the healthcare sector and then in the energy sector, have obscured both the signs of convergence and their causes, and Italy’s productivity dynamics have once again declined.
To sustainably strengthen productivity dynamics, it is necessary to act simultaneously on multiple levers: supporting the innovation and efficiency of frontier companies, promoting the diffusion of best management and technological practices among less productive entities across supply chains, encouraging their growth, and facilitating greater convergence of capital and labor towards companies and sectors with greater potential.
Manufacturing in Numbers: Its Contribution to the Country’s Growth
The Report confirms that manufacturing is one of the main drivers of Italian growth and clearly quantifies its contribution to the country.
Industry generates approximately 15% of GDP – a share that exceeds a third when including related industries – and over 60% of total production.
Manufacturing is also responsible for almost 35% of total investments and 50% of national spending on research and development, supporting innovation, skilled employment, and productivity growth.
Added to these figures is its fundamental role in exports: over 95% of exports are manufacturing.
Broadening our perspective and assessing its global relevance, Italy confirms its position as a leading player: it is the eighth-largest manufacturing sector in the world and the second-largest in Europe, with a highly diversified production model, strongly oriented towards foreign markets and integrated into complex supply chains.
Thematic Insights
The report also explores two key topics based on empirical academic studies.
The first series of insights analyzes the value of skills, flexibility, and inclusion as levers for industrial competitiveness: in light of demographic decline and technological transformation, the need for an integrated strategy emerges that expands the employment base through care services and social infrastructure, disseminates best management practices for the effective use of digital technologies, and improves institutional efficiency by offering a regulatory framework that fosters labor mobility and innovative investments.
The second series of insights examines the implications of the return of industrial policy, highlighting how its effectiveness varies depending on the implementation methods.
Sector factsheets: the voice of trade associations
The final chapter of the report integrates aggregate analyses with more granular sector data and insights gathered from trade associations, which report entrepreneurs’ perceptions of the obstacles, development paths, and conditions necessary to remain competitive.
This detailed analysis highlights several recurring points:
Among the obstacles to competitiveness, energy costs are cited by 92% of associations as the main critical factor;
Quality, specialization, and technical skills remain distinctive levers of the production system;
Digitization, sustainability, and innovation are the most widely shared investment priorities;
Many supply chains demonstrate strong international openness and the ability to adapt to technological and geopolitical changes.
November 26, 2025
Research Center
Confindustria
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