Italy

OVERVIEW

In a famous advertising campaign, Italian car-maker Ferrari’s motto was: “We are the competition” – a powerful expression of the brand’s association with power, speed and success. Unfortunately, for the economy of Italy, such associations could hardly be less appropriate. While it is the EU’s third largest economy, on the Wake Up 2050 Index it is ranked in thirty-first place out of thirty-five countries studied. It remains a country mired in a multitude of structural problems that pose a serious challenge to its future economic prosperity. While it retains some strengths in knowledge, it has multiple weaknesses in innovation, openness, resilience and demography.

Strengths

Italy offers its female workers a relatively equal environment; they are ranked above France and the UK in terms of gender equality, which is a surprise given the extent of female stereotyping in the country’s media. In terms of demography, Italy’s citizens generally live long and healthy lives.   They have the longest life expectancy of any EU country. Despite inventing some of the food products that often cause obesity elsewhere, fewer Italian people are overweight than in France, Germany or Spain. This indicates that Italian workers are likely to be fitter and healthier than others as well as impose fewer financial burdens on the healthcare system than those elsewhere.   This gives a degree of demographic strength to Italy’s long-term economic outlook.

In addition, Italian households have been prudent in avoiding the accumulation of excessive debt that plagues countries such as Denmark or Switzerland. Levels of debt are some of the lowest in the EU. This enables Italian households to respond appropriately to future economic conditions.

Weaknesses

However, the problems in Italy’s situation are myriad and severe. They suffer from the acute demographic trio of low fertility rates, low rates of employment of older workers and high public pension costs. They spend a staggering 15% of GDP on pensions – higher than any other country studied. As a result levels of government debt outstrip their GDP by some margin.   Some of the worst levels of bribery and corruption of any European state, and the ineffective enforcement of the rule of law undermine the confidence of firms invest and expand.

More worrying, if anything, are levels of knowledge and innovation. Levels of tertiary education are lower than in Mexico or Turkey; workers are increasingly ill-equipped to meet the needs of businesses in the knowledge-economy. It is therefore unsurprising that innovation is inadequate: levels of patent applications are running at half the rate of the UK and a fifth of the rate in Sweden. Too little is invested in research and development – rates are lower than Hungary or the Czech Republic. This means that Italy’s ability to create new products and services to sell in global markets is severely impaired. A country famed for its creativity has become highly uncreative.

FACT FILE

Population: 60.4 million (OECD, 2014)

GDP: $2,198 billion (OECD, 2015)

GDP per capita: $36,196 (OECD, 2015)