Coface assesses Italy’s economic situation critically, Switzerland’s fourth-largest trading partner. Low productivity, slow growth and tight fiscal space pose challenges. Coface’s “B” country risk assessment indicates an elevated probability of non‑payment on export receivables. For Swiss exporters, careful risk management is strongly recommended.
2nd quarter 2025 in decline
Italy’s statistics office Istat has confirmed: GDP fell by 0.1% in the second quarter of 2025, marking the first decline in two years.
In Q1, the economy had still grown by 0.3%. The drop is no surprise, as investments and other growth drivers have been losing momentum for some time.
The main reason is the negative trade balance. Unfavourable global trade conditions have caused net demand to collapse. After the strong rebound in 2021 and 2022, driven by the post-COVID recovery, Italian goods exports have recently stagnated or even declined.
This is largely due to the fragility of its most important trading partners, weighed down by the energy crisis and geopolitical strains. The U.S., Italy’s second-largest export destination with an 11% share, plays a central role, meaning American trade policy choices resonate strongly in Italy.
The start of 2025 looked promising, with goods exports up 1.8% and services up 3.4%. But the second quarter told a different story: goods exports slipped by 2.2%, while service exports flatlined.
Several factors explain this decline. U.S. importers had brought forward orders in Q1 to pre-empt possible new tariffs, especially in pharmaceuticals. At the same time, the previous quarter’s figures were inflated by deliveries of large cruise ships in the transport sector, an exceptional effect that no longer applied.
Ongoing trade tensions and geopolitical uncertainties add to the pressure. Their impact is felt like a domino effect. Even partner countries such as Germany and France are affected, reducing overall foreign demand for Italian goods.
EU recovery fund brings a boost
Gross fixed capital formation (GFCF) lost momentum in 2024. Previously, it had accounted for more than half of post-COVID growth, driven largely by the Superbonus. Still, Italy continues to benefit significantly from EU support through the NextGenerationEU program (NGEU).
Over the 2021–2026 period, Italy has access to roughly €72 billion in grants and €123 billion in loans, a combined 11% of 2019 GDP. This makes it the single largest recipient of the program in absolute figures.
However, by the beginning of this year, only about half of the funds already disbursed had actually been spent. This suggests that implementation is likely to accelerate in the coming year, as the deadline for using the funds approaches.
Weak household purchasing power and stagnant consumer spending
Private consumption in Italy has been stagnant for over a year. It is only 0.8% above pre-crisis levels. The expected recovery has therefore yet to materialize.
The reason lies in weak consumer confidence and stagnant purchasing power (consequences of the Ukraine war). Although inflation has been stable for nearly two years, Italians’ real disposable income is hardly higher than in 2019.
During 2022 and 2023, Italy faced a pronounced inflationary surge. Coupled with slower wage growth compared to other European nations, this led to a contraction in real wages.
A structural problem is the long duration of collective bargaining agreements, which typically last three years. Even after they expire, renegotiations often take more than a year. As a result, wages have lagged far behind the extraordinary inflationary pressure, and household purchasing power remains stagnant.
Historically high employment rate, yet still one of the lowest in the Eurozone
The Italian labor market is showing positive developments. Employment is rising, and unemployment is falling. In July, the unemployment rate stood at 6%, the lowest level since 2007. At the same time, the employment rate reached a historic high of 62.8%.
In comparison with the rest of Europe, Italy still lags behind. The Eurozone average is around 71%, meaning Italy continues to have one of the lowest employment rates.
Rising employment is largely fuelled by more permanent jobs, better workplace quality, and increased participation of older employees. Growth among younger workers is tapering off, affected by population ageing, government measures like the 2024 Cohesion Decree, and past pension reforms limiting early retirement.
Despite the upswing in employment, private consumption did not pick up, largely because it occurred amid weak overall economic growth. Productivity losses ensued, with new positions concentrated in low-productivity, labour-intensive industries such as construction, trade, and hospitality, collectively contributing around one percentage point to employment growth in 2024.
Another factor played a role: falling real wages after the Ukraine war made labour cheaper relative to other production factors. As a result, employment growth outpaced production growth, and productivity declined more sharply than in the rest of the Eurozone.
Since 2024, the labour market and wage dynamics have improved. Stabilized inflation and renewed collective agreements have pushed wages above price growth, enhancing real incomes—but still falling short of compensating for previous years’ losses.
At the same time, consumer caution remains evident. In the face of global uncertainties, the savings rate stayed high: 12% in the first quarter of 2025, compared with 11% between 2015 and 2019. Despite higher purchasing power and more favourable credit conditions, Italians’ willingness to spend remains restrained.
Strengthening public finances and reducing the budget deficit
Despite weak growth, Italy has managed to stabilize its public finances. Through spending cuts and higher revenues, the budget deficit fell to 3.4% of GDP in 2024 – more than halving. A more stable political situation since Giorgia Meloni’s 2022 election has also strengthened market confidence.
Following these developments, the yields and spreads of 10-year government bonds decreased markedly. From their 2023 peak of 5%, they settled at roughly 3.6% by September 2025.
The primary factor was the phasing out of the Superbonus and the discontinuation of pandemic and energy aid. At the end of 2023, a last rush occurred, as the bonus’s coverage rate, reduced from 110% to 90%, was about to drop again to 70%.
As a result, the deficit surged unexpectedly to 7.2% of GDP in 2023, equivalent to roughly 76 billion euros. Yet this special factor actually helped to curb the crisis swiftly in 2024.
Investment spending collapsed, falling from 9.2% of GDP in 2023 to 5.4% in 2024. In addition, a Eurostat-approved change in accounting practices altered the statistics: since 2024, tax credits are no longer recorded as immediate expenditures but instead reduce revenues retroactively.
Tax receipts grew strongly as well. Supported by a resilient labor market, direct taxes rose 6.6% per year, pushing the tax-to-GDP ratio from 41.4% in 2023 to 42.6% in 2024.
In the long term, however, challenges remain. Italy’s declining population and weak productivity growth continue to weigh on economic and public finance prospects.
Secure your operations in Italy with full coverage
Even under the strain of a persistent economic vicious cycle, Italy remains indispensable to Switzerland’s foreign trade. The trade volume reaches about 50 billion Swiss francs, split between 24 billion in exports and 26 billion in imports. Swiss exports to Italy have nearly doubled since 2021, with an additional 33% increase recorded in 2023.
But caution is needed. Rising credit risks and an increasing number of insolvencies make it clear: Swiss companies must ensure thorough risk coverage when trading with Italy.
This is where Coface comes in. As one of the global leaders in its field, the company provides Swiss organisations with comprehensive solutions – ranging from business information and trade credit insurance to debt collection services.
In the Business Information & Intelligence sector, Coface integrates global business datasets with its credit insurance analyses. Approximately 600 experts add value by providing strategic, unique, and sometimes sensitive intelligence.
