Energy, Green Deal, Duties, Italian Industry, European Competitiveness, Analysis, Forecasts and Solutions by the Confindustria Study Center
ITALY SLOWS DOWN IN 2025 BUT GATHERS UP IN 2026
In 2024, Italian GDP grew by +0.7% per year, thanks to fairly widespread contributions among the components: household consumption (+0.2%), gross fixed investments (+0.1%), collective consumption (+0.2%) and net exports (+0.4%), which offset the decumulation of inventories. In the first quarter of 2025, the economic indicators portray a phase still characterized by weak expansion.
Italian GDP in 2025 is expected to grow almost in line with that observed in 2024: +0.6%. In 2026, however, it is expected to regain momentum, at +1.0%. For 2025, there is a downward revision of -0.3 percentage points attributable, in large part, to the weakness of the second half of 2024 and to the worsening of the macroeconomic framework in which opposing forces are in opposition. On the positive side, in 2025-2026 the following will act:
the continuation of the rate cuts by the ECB, which will bring monetary policy to a neutral level by the end of 2025.
Second, the rise in total real disposable income of families, thanks to the progressive recovery of per capita wages, the good contribution of non-labor income, the increase in total employment, the fall in inflation, although the last two phenomena will ease in 2025 and 2026. Together with the expected decline in the propensity to save (from the end of 2025 and then in 2026) thanks to the unravelling of uncertainty, the increase in income is expected to continue to make a good contribution to the dynamics of consumption.
Third, the implementation of the PNRR: between 2025 and 2026 the planned resources amount to around 130 billion. Even if they will not all be spent (the hypothesis is that half of them will be spent, 65 billion), they will make an important contribution to GDP, in particular to investments in construction, held back by the disappearance of incentives for residential construction.
On the negative side:
the lack of support for investments in plants and machinery, since the Transition Plan 5.0 proved ineffective in 2024 and should have little impact in 2025.
Yet another increase in energy prices, which does not reach the peaks of 2022, but threatens the competitiveness of Italian companies and reduces the real income of families.
But above all, the wave of duties announced by the Trump Administration, to which the Italian economy is particularly exposed, given that the USA is the second market for our goods.
The CSC forecast scenario only incorporates the aspect related to the surge in uncertainty caused by tariff announcements, with the assumption that it will last for the first half of 2025; if persistent, it would represent a strong limit to growth, as it would negatively affect domestic and international investment decisions. But it does not include the effect of further tariffs and counter-tariffs.
UNCERTAINTY AT AN ALL-TIME HIGH.
DUTIES WEIGH AS MUCH AS A TRADE CONFLICT
For Italy, in 2024, exports of goods to the USA amounted to 65 billion euros, over 10% of the total. Between 2019 and 2023, the increase in such exports contributed 4.5 points to the increase in total Italian exports (a cumulative 30%). At a sectoral level, the most exposed Italian industrial sectors are beverages, pharmaceuticals, motor vehicles and other means of transport. The reintroduction of US duties on steel and aluminum at 25%, according to estimates by the Confindustria Research Center, will lead to an average drop of approximately -5% in steel and aluminum exports to the United States, with a minimal macroeconomic impact (approximately -0.02% of Italian exports of goods).
The worst-case scenario of a possible protectionist escalation that leads to a persistent, rather than temporary, increase in uncertainty (+80% over 2024), the imposition of duties of 25% on all US imports, including those from Europe, and 60% from China and the application of retaliatory tariffs on US consumer goods exports, would have a cumulative negative impact on Italian GDP, measured as a deviation from the baseline scenario, of -0.4% in 2025 and -0.6% in 2026.
The America First Trade Policy of the second Trump administration promises to be more aggressive and unpredictable than the approach adopted in the first term. It will be crucial to:
start negotiations with the US to reconcile mutual needs.
But it is even more essential to rapidly increase European attractiveness, to avoid capital outflows to the United States, which is what is already happening and which tariffs will accelerate.
Due to repeated tariff announcements, economic and political uncertainty indices are at their absolute maximum in early 2025, which negatively affects investment decisions, with serious detriment to trade along global supply chains.
Since 2022, more than 3,400 protectionist measures have been introduced worldwide per year, almost 3,000 more than those introduced before 2020. Any protectionist escalation, generated by tariff retaliation between the world’s major economies, would undermine the very structure of international trade and production, with profound repercussions on global GDP.
INVESTMENTS FALL, TURN INTO NEGATIVE
Investments are expected to decline this year by -0.8% (in line with the negative trend already observed in the second half of 2024) and recover in 2026 (+0.9%), remaining substantially stagnant in the two-year period. This weakness is determined by:
the delayed effects of restrictive monetary policy;
the industrial crisis;
the high level of international uncertainty, due to duties and geopolitical tensions;
the weakening of fiscal incentives, which had represented an important stimulus capable of unlocking investments in recent years (Superbonus and Transition 4.0).
Finally, spending on plants and machinery has fallen back throughout 2024, first due to a “postponement” effect linked to the wait for Transition 5.0, then due to the lack of attractiveness of the measure due to a series of operational difficulties. They are expected to remain in contraction in the first part of 2025.
EUROPEAN COMPETITIVENESS IS TOO LOW
The Eurozone GDP growth is forecast at +0.8% in 2025 and +1.0% in 2026, after +0.7% in 2024. Sustained growth in the Area is not to be expected in the near future due to the persistence of some structural brakes:
First of all, the crisis in Germany does not appear to be cyclical.
Another factor that continues to slow down the growth of the Area is the high price of energy. The price of gas rose to 50 euros/mwh on average in February 2025 (42 in March), with a marked upward trend compared to the minimum of 26 euros recorded in February 2024. Above all, it is much higher than in the USA (with a ratio of 4 to 1).
Europe is progressively losing competitiveness with respect to the United States and China. From 2007 to today, the EU has recorded an average growth of +1.6% per year, against +4.2% in the USA and +10.1% in China, at current prices. The gap accumulated with the United States since 2007 is over 70 percentage points of GDP.
Low European productivity derives from lower investments on average, about 1.1 points of GDP per year less in the EU than in the USA.
Looking at investments in R&D, from 2000 to today, the gap accumulated with respect to the United States amounts to over 17 points of GDP.
The failure to complete the European single market and the failure to harmonize some rules are among the main causes of these delays, because they create obstacles to the exchange of goods and services within the EU: according to IMF estimates, these factors can increase the production costs of manufactured goods by 44%, and by 110% for services. In the US, the weight of these barriers to trade in goods between states is about 13%. If the EU were able to reduce these barriers to the level of the United States, productivity would increase by 6.7%.
THE WEIGHT OF BUREAUCRACY IS HOLDING DOWN THE EUROPEAN ECONOMY.
THE ENERGY CHALLENGE IS A CRUCIAL ISSUE TO BE RESOLVED
Regulatory proliferation is another factor holding back the European economy. A very high cost for European companies reduces the attractiveness of the EU as a place to do business: for example, a recent study estimated that compliance with the GDPR (which regulates how companies process personal data) led to an average decrease of 8% in profits and 2% in sales; the Draghi Report indicated that, between 2019 and 2024, the EU approved around 13,000 acts, more than double that of the USA.
Finally, the energy challenge is a crucial issue to be resolved.
Over the last thirty years, energy consumption in the world has doubled, the European share has fallen from 17% to 9%, and on the supply side, fossil fuels still cover, as they did then, over 80% of the needs. The choices made so far at European level only satisfy the objective of sustainability, but seriously jeopardize both European growth and security.
For this reason, it will be necessary to review several mechanisms, such as ETS and CBAM, which entail significant competitive disadvantages for European companies.
STABLE EMPLOYMENT EVEN WITH WEAK PRODUCTION.
BUT FOR HOW MUCH LONGER?
Regarding employment, in 2025 and 2026 the growth rate of labor input, measured in terms of full-time equivalent units (FTE), is expected to realign with that of economic activity (+0.5% and +0.7%, a pace just below that of employment in terms of heads), contrary to what happened in the last two years (FTE +4.7% cumulative, GDP +1.4%).
This will allow an improvement in labor productivity, after the sharp drops in previous years.
In private services, the increase in average productivity is partly explained by recomposition effects, with sectors with high labour productivity expanding (such as the information and communication sector) and sectors with low productivity whose weight has significantly reduced (such as art and entertainment services).
ITALIAN INDUSTRY: THE DECLINE RISKS BECOMING STRUCTURAL
The industrial crisis does not only concern Italy (-8.2% production between mid-2022 and the end of 2024), but is international and is characterized by strong sectoral heterogeneity.
The automotive sector is the most affected in all European countries, but the decline is also marked in the fashion and metalworking sectors: if we consider manufacturing production net of these sectors, in 2024 in Italy it decreased moderately (-1.5%), while it fell more in Germany (-2.6%) and grew in Spain (1.6%).
Added to this are: the crisis in Germany, as in the rest of the Eurozone, weak demand throughout the Eurozone after years of high inflation and high rates, the preference of families for services over goods that has contributed to the weakness of demand for industry, the high cost of energy in Europe and especially in Italy. Some of these problems could be resolved in the short-medium term (preference for services, European weakness), others are destined to last longer (cost of energy, German crisis, cars, fashion).
It should be emphasized, however, that in Italy the industrial crisis is a crisis of production, much less of added value (-3.5% in the same period), investments and exports, certainly not of employment which instead has increased even in the most affected sectors.
There may be various reasons behind this anomaly: a decumulation of intermediate goods stocks; a recomposition within the manufacturing sector towards sectors with higher added value; an improvement in the quality of production.
The data that will be released in the near future will clarify this for us.
April 2025
Study Center
Confindustria
