Italy, no longer just "poor and beautiful" but competitive and innovative
The mainstream of economists and commentators has for years been hypercritical towards our economy, considered fragile, immobile, not very innovative and competitive, without a future. And, despite some clear recent progress by Italy,the majority of the mainstream remains fundamentally pessimistic.
But what is the mainstream? This term refers to a prevailing current of thought, especially among those who form opinions. In the case of the Italian economy, the mainstream is absolutely negative across the board and even a little self-satisfied. Furthermore, as if the banal clichés that foreigners have planted on us over time were not enough, our mainstream has constantly brought grist to the mill of such stereotypes,thus giving Italy the worst possible publicity abroad.
The major criticisms directed by the mainstream towards the Italian economy concern the high public debt/GDP ratio, the low Research & Development/GDP ratio, the small size of our companies, as well as productivity, competitiveness and growth, all three considered low. Furthermore, a typical workhorse of the mainstream is the thesis of oneprogressive loss of purchasing powerof Italian families, a sort of irreversible trend, which the political classes and governments, especially the most recent ones, would not be able to counteract due to inability or lack of determination. Another fault of our governments, according to the mainstream vulgate, would be that of not being capable of carrying out "reforms" (only to then be harshly criticised, as in the case of the Jobs Act, when they are carried out).
Ironically, many economists of themainstreamare "rigorous" in inspiration but they do not seem to be aware of the fact (or pretend not to know) that the greatest increases in debt/GDP and the greatest falls in the purchasing power of Italian families in contemporary times occurred during the so-called "austerity", i.e.just when some of their "recipes" have been applied to the letterfavorites on economic policy. The ideal world of the mainstream, in fact, is one in which a country with a high debt/GDP like Italy must forcibly produce repeated primary state surplusesmonsters, like 3% or more of GDP per year. Thus ignoring that such a policy would inevitably end up generating strong drops in GDP itself, as in fact happened during the "austerity" period 2011-2014,determining an increase and not a reduction in the debt/GDP ratio, that is, the exact opposite of what was desired.
The stereotype of "spendthrift" Italy
Given that we believe that high public debt is a serious problem and that it is absolutely essential to keep it strictly under control (of course!), we absolutely do not share the mainstream line. Continuing to describe Italy as a "spendthrift" nation that squanders public money liberally, or even going so far as to justify in a masochistic way the low ratings attributed by rating agencies to our sovereign debt, as some "champions" of the mainstream have come to do, means ignoring:
that by nowall major advanced countrieswith the sole exception of Germany, submit reportspublic debt/GDP above 100%; Italy is therefore no longer, as it was 20-30 years ago, an almost isolated negative case, together with Japan;that after austerity until Covid lItaly has managed to reduce its debt/GDPthanks to a correct and balanced combination of growth and rigor, especially in the period of the Renzi-Gentiloni governments with the support of the economy minister Padoan, both governments also strongly criticized by the mainstream;that after Covid and the exceptional injections of public spending that have taken place throughout the world, Italy is the only G-7 country to havedebt/GDP returned to pre-Covid levels;that approximately half of our debt is firmly in Italian hands, thanks to the high private wealth of our country; another approximately 20% is "parked" at the Central Bank (following the support purchases of recent years which affected all European countries to a similar extent, with Germany and France leading the way); only a share of less than 30% of total Italian public debt is financed by non-resident investors, i.e. one of the lowest shares in the EU; other high public debts, such as that of France, are instead financed by foreign investors for more than half of the total and aretherefore more vulnerable than Italian debt;that Italy is the advanced economy that from 1995 to 2029 has produced and will produce more state budgets in surplus before interest payments, i.e. primary surpluses; Italy, therefore, has onelong history of an “honorable” debtor countryand certainly not a "spendthrift" country, given that its debt has increased for several decades only due to interest;that thefinancial positionon Italy's foreign markets iswidely positive(225 billion surplus at the end of the second quarter of 2024); this means that Italy's stock of private foreign credits (thanks above all to the repeated trade and tourism surpluses) is higher than that of Italian public debt financed by non-residents; other important EU countries, such as France and Spain, instead present negative foreign asset positions, both characterized by liabilities close to 800 billion euros;that the so-called "S2" Index of sustainability of public debts in the long term in light of future costs for pensions, healthcare and aging of the population - an indicator developed by the European Commission itself - indicatesItaly as a "low" countryrisk, while France, Spain and Germany itself are at "medium" risk. This is thanks to those reforms that, according to the Mainstream, Italy is incapable of carrying out, including pension reforms.
Not only that. The mainstream seems not to have understood that today theItalian public debtcompared to those of other countries it is among themore solid and under control. Even in these years, as in the past, most of the increase in our debt depends, in fact, on interest, while the growth of the debt of other countries depends on increasingly large structural imbalances of states and local public administrations.
Take, for example, the Italy-France comparison. In the last twelve months, i.e. from the third quarter of 2023 to the third quarter of 2024, Italian debt has grown overall by 111.7 billion euros, 85.4 of which, i.e. the majority of the increase, is due to interest. Excluding the latter, our debt increased by 26.3 billion in one year. In the same period, for comparison, France's public debt increased by 205.7 billion, of which only 56.9 was due to interest. So the French debt excluding interest has grown by 148.8 billion,that is, over 5 and a half times more than the Italian one. The Himalaya of debt that the new French Prime Minister François Bayrou finds himself having to climb, as "Le Figaro" wrote, is becoming higher and higher.
It is a fact that in Italy the primary budget of the public administrations, i.e. the budget calculated before interest payments, has now been positive for two quarters: it was equal to 1.2% of GDP in the second quarter of 2024 and 1.7% of GDP in the third quarter, after -5% in the first quarter. Therefore, in the first nine months of 2024 theItalian primary budgethas accumulated a relatively limited overall deficit, equal to -0.6% of GDP, now moving towards a possible balance at the end of this year and towards asubstantial surplus in 2025 and 2026, as required by the European Commission itself. This also explains why our spread, despite the "gulps" of the mainstream, is tending to decline and why foreign investors have recently returned to buying Italian government bonds with confidence (+96 billion from the beginning of 2024 until September), without our debt becoming too unbalanced towards foreign countries, unlike the French one.
The improvement of public debt and the recovery of the purchasing power of Italian families
Based on seasonally adjusted statistics, in the last twelve months, i.e. from the third quarter of 2023 to the third quarter of 2024, the purchasing power of Italian families has increased in real terms by 2.6%: in particular, it has grown cyclically especially in the first quarter of 2024 (+1.2% compared to the fourth quarter of 2023) and in the subsequent second quarter (+1.1% on the first quarter 2024), while the progress in purchasing power slowed down somewhat in the third quarter of 2024 (+0.4% compared to the second quarter). These are notable data, because after the surge in inflation they mark astrong recovery in incomereal grossavailable for families, i.e. the income obtained using the final consumption expenditure deflator (chained values with reference year 2020).
The mainstream and many commentators, as a rule, almost always tend to blame more recent years for both the drift in public finances and the deterioration of living conditions compared to 20-30 years ago, without any in-depth analysis of the real causes and dynamics of these two variables.
The truth isthe Italian public debttoday is certainly much higher as a percentage of GDP compared to the years preceding the global financial crisis of 2009 but in reality itis practically the same as ten years ago, despite everything that has happened in the meantime, from Covid to the Russian-Ukrainian war. Likewise, if the per capita purchasing power of consumer families, calculated on the raw data of the last four quarters, is still today, in the third quarter of 2024, 6.8% lower than that of the second quarter of 2007 before the burst of the global mortgage bubblesubprime, it is equally true that it is also higher by 8.3% compared to the first quarter of 2014, which emblematically marks the end of the so-called "austerity". Public debt and citizens' purchasing power are not inevitably condemned to worsen and positive changes have already occurred.
The reality is that between 2008 and 2014 the Italian economy experienced a sort of "apocalypse" far worse, in macroeconomic terms, than that of the recent pandemic, with, in rapid succession, the global crisis of 2008-2009, the financial crisis and the Greek debt contagion of 2010-2011, as well as the subsequent period of "austerity" from 2011 to the beginning of 2014. Since then, however, a long parallel "convalescence" of the State and consumers has begun, although not yet concluded. But, fortunately, for the past ten years, despite some ups and downs, our public debt has returned relatively under control, while theconditions of Italian families, also thanks to a vigorous recovery in employment,are progressively improving.
In short: there was a before and an after, very different. In fact, the Italian public debt, in relation to GDP, worsened from 103.5% in 2007 to 134.8% in 2014: an increase of +31.3 points of GDP, roughly equally distributed between the 2008-2011 period and the subsequent "austerity" period from 2011 to 2014. While in 2023, after having reached a maximum point of 154.3% during Covid,our debt has returned to 134.8%, i.e. practically at the same levels as 2014.
Global mortgage crisissubrime, Greece and "austerity" were, similarly, at the origin of a dramatic worsening in the per capita purchasing power of Italian families from the second quarter of 2007 to the fourth quarter of 2011, estimated at -13.9% in real terms. This was followed, under the Renzi and Gentiloni governments, by a recovery of this purchasing power of 4.2% until the first quarter of 2018; a subsequent stationary phase with the Conte 1 and 2 governments until the fourth quarter of 2019, before Covid; then a substantial almost return to pre-Covid levels in the first quarter of 2021, during the second phase of the Conte 2 government; a subsequent progress of 3.8% during the Draghi Government until the third quarter of 2022; to arrive, in conclusion, at the third quarter of this year, the date on which, despite inflation (which led to a temporary decline in 2022-2023), a further growth of 0.8% was recorded in the real disposable income of families during the current Meloni government.
In the face of these data, should we perhaps endlessly regret what went wrong in the Italian economy between 2007 and 2014?Let us rather look at the subsequent progress and the coming years. Trying to keep public finances in order and further improving the living conditions of families. It's not impossible, because we're not in bad shape. As already mentioned, our debt/GDP is the only one in the G-7 to have returned to pre-Covid levels. While the real Italian per capita disposable income, adjusted with public transfers, is today equal to around 27,334 euros in purchasing power parity, practically similar to that of Denmark, which is 27,948 euros, and not very far from the 28,758 euros of a country always taken as a model such as Sweden. Furthermore, our income is a good 2,730 euros above the per capita disposable income of the ever-praised Spain, which is equal to 24,613 euros, and is much higher than those of Portugal and Greece (Eurostat data referring to 2023). We are therefore much closer than we think to Scandinavia than to the Mediterranean, at least in this respect.
Low growth and the innovation deficit: the "key" wrong theses of the mainstream
We will certainly not be the ones to ignore that the Italian economy, like many others, has its problems, among which the most important ones are abureaucracyinvasive and inefficient, the hightax evasion, a services market that is still not very liberalized and aNorth-South dividewhich is, yes, decreasing but there is still a long way to go.
However, the mainstream does not say something correct when it states that the Italian GDP has returned to growing little, after the strong recovery of 2021-2022, citing as proof of this the double consecutive +0.7% of 2023 and that expected for 2024, which are largely dependent on the slowdown of our industry due to the crisis in Germany and the automotive sector. In fact, the European Commission itself predicts that Italian GDP will increase overall by 2.3% in the two-year period 2025-2026, i.e. more than the French, Japanese and German ones. A result of no small importance considering that the current greater growth of some other economies derives more than anything from the push of the increase in population, while our demography has been declining for some years. So, if we instead consider GDP per capita, the other large advanced countries are all growing less than ours, with Italy having a growth of 2.9% of its GDP per inhabitant in the next two years, compared to +2.8% in the United States, +1.7% in France, +1.5% in Germany and +1.3% in the United Kingdom.
Another pillar of the mainstream is to insist on the fact that in the last twenty years Italy has been the advanced economy whose GDP has grown the least. Hence the stereotype of Italy being "last at the rear". This is true, but it happened essentially due to the "lost" decade 2004-2013, characterized by the subprime mortgage crises, in Greece and precisely by that austerity that the mainstream itself still considers a "model" today. The reality is that, in the absence of compelling reasons, it is quitequestionablethe choice ofduration of the historical periods on which to make comparisonstimelines relating to the growth of the various countries. On the basis of this choice, in fact, everything and the opposite of everything can be affirmed.
It is easy to object to the mainstream that,over the last ten years(2014-2023), in the G-7 the GDP per capita ofItaly was second in terms of average annual growth ratecomposed only to that of the United States and the "last ones" were Germany and France, not Italy. Similarly, if we instead take the last sixty years (1964-2023), that islet's consider a longer periodand not influenced by specific crises that occurred within a particular decade, Italy's GDP per capita recorded aaverage annual ratecomposed exactly the same as that of the United Kingdom, one decimal higher than those of Germany and Canada and just one decimal lower than those of the United States and France. Ultimately, apart from Japan, which from 1964 to today has grown more than anyone else due to the tail end of the post-war boom,the GDPs per capita of other countriesof the G7 in the last sixty years are thatall increased more or less with the same intensity.
Also sickening is the constant complaint of the mainstream regarding our low R&D/GDP ratio, which in their opinion is one of the causes of the presumed low Italian growth. In reality, the R&D/GDP ratio is a misleading indicator because it is higher in countries where the weight of highly research-intensive industries such as cars or electronics is greater, in which Italy is less specialized. Not thismeans that Italian industry is not innovative, given that Eurostat recently certified that the share of companies active in innovation in Italy (63.1% in 2022) is the fourth in the EU-27, substantially the same as that of Germany (63.4%), which is third in the ranking. But it should also be underlined that, differently from what the mainstream claims, Italy actually does R&D in its sectors of specialization: for example, our country spent on R&D in 20221.8 billion eurosin non-electronic mechanics, where we are among the world leaders. Obviously some problems remain. In particular, in Italy theconnection between the university R&D system and large institutions, on the one hand, and, on the other, the industrial system. But also the thesis of auninnovative Italian economy is completely unfounded.
Employment in Italy is at an all-time high
Another point that the mainstream seems to ignore or underestimate is the significant progress in employment in Italy. In fact, despite a slight decline in the number of fixed-term employees in November 2024, the labor market in Italy continues to achieve positive results. In November 2024 the unemployment rate fell to 5.7%,absolute minimum valuesince the current Istat seasonally adjusted monthly historical series existed, while the employment rate remained at 62.4%,historical high already reached in August and October.
At European level, thethe Italian unemployment rate is now clearly the lowestamong the Mediterranean countries and also among the Scandinavian and Baltic countries. It compares with 6.7% in Denmark, 7.5% in France, 8.5% in Sweden and 11.2% in Spain, the latter country where worrying levels of unemployment and poverty hide behind the strong GDP growth data. The Italian unemployment rate is also among the lowest in the world and is close to the historically low values of advanced economies such as Germany (3.4%, again in November) or the United States (4.2%).
Istat data indicate onestrong growth in the number of employedpermanent employees, i.e. those hired on a permanent basis, denying the unjustified alarmism regarding an impoverishment of the quality of jobs and a widespread increase in precariousness. Not new criticisms. Even during the Renzi government, strong doubts were expressed about the effectiveness of the labor market reform, the so-called Jobs Act, and the reductions in contributions that accompanied it. And even then the critics' knife was mainly planted in the hypothetical wound of a growth in precarious work. Due to initial errors in estimates by Istat, which lasted for a few months, confirming these criticisms, the number of people employed did not seem to increase as the creators of the reform had hoped. But then the first estimates were strongly revised upwards and, in conclusion, tbetween February 2014 and May 2018, during the Renzi and Gentiloni governments, the overall number of employed people in Italygrew by 1 million 257 thousand units, of which 550 thousand with permanent contracts.
This time too, the increase in the number of total employed people but above all in the number of permanent employees makes a strong impression, with an unprecedented surge in permanent jobs well highlighted by the graph. In fact, after recovering pre-Covid levels in October 2022,employees in Italy have grownoverall of820 thousand units. In the same period, again from October 2022 to November 2024, permanent employees increased by 991 thousand units, i.e. more than total employment, which in the meantime saw the number of fixed-term employee jobs reduce by 337 thousand units and the number of self-employed workers increase by 166 thousand. We are therefore in the presence of asignificant increase in quality employment and a reduction in precarious employment.
Misunderstandings about low productivity: another (false) workhorse of the mainstream
The data also refutes the mainstreamproductivity, which in Italy is certainly low in services but certainly not in manufacturing, where it issignificantly highcomparatively to other major European countries. And this despite the fact that our businesses mustbear much higher energy costsof their competitors. Imagine how much more competitive the Italian industry could be if it could also have one to support itnational nuclear capacity, especially in the most energy-intensive sectors.
What is stated above is not, however, shared by those who focus exclusively on the aggregate data of manufacturing productivity, thereby obtaining an incorrect vision of reality. This is because such data generate a kind of statistical astigmatism.
In fact, as we have already documented several times in the past (recently in Fortis, "If Italy beats Germany on the export and productivity front", Il Sole 24 Ore, 9 April 2024 and "The extraordinary strength of the Italian manufacturing industry", Il Sole 24 Ore, 14 November 2024), considering exclusively the aggregate average productivity of the manufacturing industry, the added value per employee in 2022 is 79,660 euros in Italy, which is significantly lower than that of Germany, equal to 96,170 euros, and that of France, equal to 85,810 euros, higher only than that of Spain, equal to 68,660 euros. If we were to stop only at this stage of the comparison, as the mainstream does, we would really have to throw our hands in our hair.
The explanationof the aforementioned aggregate figureslies in the enormous number of micro-enterpriseswith fewer than 20 employees which characterizes theItalian manufacturing. These micro-enterprises, which in our country are beyond328 thousand, obviously have low productivity and distort the average aggregate figure for Italian productivity. Does this perhaps mean that because of them the Italian manufacturing industry suffers from a handicap compared to other countries?Absolutely not. And we will demonstrate this by presenting a picture of manufacturing productivity comparing with the other major Eurozone countries excluding micro-enterprises.
The importance of micro-enterprises in Italy: why criticize them?
Before doing so, however, we would like to underline some aspects. First, Italian manufacturing micro-enterprises generated around 56 billion euros of added value in 2022, a significant figure which allows Italy to stay well ahead of France. Second, they are fundamental in the flexible subcontracting networks of the short supply chains of our districts and have allowed us during and after Covid toperform better than all other global industriesour competitors who have suffered due to disruptions in long global chains. Third, with almost 1 million and 300 thousand employees, Italian family manufacturing micro-enterprises are a unique element of social stability in the world.
We could then ask ourselves whether micro-enterprises with their low productivity are damaging our exports. No, because they participate only marginally in Italian exports, which are mostly made up of extremely competitive companies with 20 or more employees. So, why should we give up our microbusinesses?
Obviously, Italy shouldalso create the conditionsto have an alwayshighest number of medium-sized enterprises,medium-large and large: that is, to be even more competitive and to increase its possibilities for more innovation and internationalization. But this is another matter and does not mean that our industry is not already very innovative, very internationalized and very competitive, that is, the exact opposite of what the mainstream claims.
Italy first for productivity in small, medium and even large manufacturing companies
However, let's imagine, even if only statistically, an Italian manufacturing sector without micro-enterprises. What would happen?
First, based on Eurostat data for 2022, even by giving up our micro-enterprises with fewer than 20 employees, Italywould remain the second largest manufacturing company in Europefor added value, essentially on par with France.
Second, Italy is first in Europe for added value per employee both in small, medium and medium-large and large enterprises. In particular, in comparison with Germany the productivity of our medium-sized companies is decidedly higher: 89,530 euros per employee versus 72,740.And in 2022 we sensationally overtook Germanyeven in companies with 250 or more employees: 118,970 euros against 116,250 euros.
Third, if we consider the entire set of manufacturing companies with 20 or more employees, our average productivity, equal to 97,419 euros per employee, is actually a little lower than the German one, equal to 102,235 euros. You might think this is because we have fewer large businesses, but that's not the case. In fact, Germany is ahead of us exclusively due to its specialization in the medium-high automotive segment. So much so that, excluding the car industry, Italy is first in terms of productivity in the rest of the entire manufacturing industry: 97,487 euros compared to 96,758 euros in Germany.
In conclusion, only a careful reading of the data of companies with 20 or more employees can lead to an exact understanding of the extraordinary strength of our manufacturing industry. Furthermore,micro-enterprises,which are not included in the above numbers, howeverto be considered a further plus for Italy, not aminus, despite their low productivity.
Italian exports are increasingly competitive
Despite the slowdown in exports in 2024 essentially due to the implosion of intra-community trade (caused by the German and French crises, our two main markets), the Italian production system confirms itself as increasingly competitive, thanks to investments in recent years in machinery and technologies favored by the Industry 4.0 Plan, the flexibility and dynamism of our companies, and the extraordinary differentiation of our exported products.
This is confirmed by the data on our exports in the first six months of 2024, a period in which, for the first time in contemporary history,total Italian exports have exceeded those of Japan, placing Italy in fourth place in world exports (excluding the Netherlands, whose exports are mostly represented by goods in pure transit and re-exports). Probably in the second part of 2024, considering the low seasonality of our exports in the month of August, Japan will overtake us again, returning to fourth. But our temporary fourth place among world exporters in the first six months of 2024 will still remain ahistorical fact, which no one could have ever imagined even just ten years ago, when in 2013 the exports of the Land of the Rising Sun were almost 200 billion dollars higher than ours.
The reality is that Italy is now an economy capable of producing and exporting almost everything, with the sole exception of medium-high level cars (such as Mercedes, BMW, Audi) and energy. In fact, we are now very strong exporters not only of fashion, food and wine, furniture and tiles, but also of mechanics, yachts, cruise ships and even pharmaceuticals (in the export of packaged medicinesItaly has overtaken the United States and is now third behind only Germany and Switzerland).
It is sufficient to eliminate only the HS-87 item (i.e. vehicles) from the trade statistics, which, despite being very important for some countries (such as, for example, Germany or Japan), represents only 8% of the value of world trade, to have a clear idea of Italy's strength among exporters, of its product diversification and of its growing importance in absolute terms achieved in the field in recent years. In fact, in the remaining 92% of international trade, i.e. exports excluding vehicles,Italy today ranks fourth among world exporters(with 623 billion dollars in 2023), behind only China, the United States and Germany. Ten years ago (again excluding the Netherlands and also Belgium and Hong Kong for the same reasons), Italy was just ninth in world exports excluding vehicles, also preceded by Japan, Russia, France, the United Kingdom and South Korea. Therefore,in just ten yearsour country has accomplished aextraordinary leap in exports, totally ignored by the mainstream, which continues to preach that Italy is an uncompetitive economy, because, in its opinion, it has companies that are too small, not very innovative and is also characterized by a totally "wrong" and losing international specialization in the context of globalization. With all due respect to the real data, which instead tell us the exact opposite.