- Italy approaches the Olympic Winter Games Milano Cortina 2026 with a notably stronger macroeconomic backdrop, underpinned by post‑pandemic resilience in output, employment and trade, and an improved fiscal stance. Italy had the strongest average per capita growth among large European economies since Covid-19, outpacing even Spain. Trade has also shown a degree of resilience despite heightened uncertainty, providing a partial buffer to external risks; the extra-EU trade surplus declined only by EUR1.5bn in 2025 compared to the previous year, supported by high-value sectors such as metals, pharmaceutical products and machinery and equipment. Upgraded sovereign ratings and BTP-Bund spreads at their lowest levels since 2008 signal greater external confidence in Italy’s policy credibility and medium‑term debt sustainability, creating favorable financial conditions.
- Political stability has been a major driver of the narrowing in government spreads, with EU initiatives also contributing. The current government is on track to become the longest‑lasting in modern history, with potentially strong support heading into the 2027 election. A stable political backdrop supports timely policy implementation and helps prevent political‑risk premium from offsetting the positive effects of NGEU. Since 2021, we estimate that NGEU has added 0.25pp of additional GDP growth on average per year and strengthened fiscal positions, which translated into an additional 50bps of spread tightening. However, fiscal tailwinds are fading as the grants that are currently cushioning the deficit by accounting as fiscal revenues will expire in 2026, while pressures persist as interest payments remain elevated at around 3.7% of GDP.
- Structural challenges persist as much of the recent improvement reflects temporary or front‑loaded factors. Today’s stronger macro financial footing offers a more favourable backdrop to tackle longstanding constraints. Productivity and the activity rate have barely grown since the 2000s and lag peer economies; demographic pressures will see the working‑age population fall by -16% by 2050 (compared to -9% in the Eurozone) and limited digitalization together with a fragmented business sector further weigh on efficiency. These weaknesses limit Italy’s potential growth rate, demanding a renewed push on structural reforms, targeted investment in workforce reskilling and digital transformation and commitment to a long‑term strategy that delivers sustained productivity gains and enhanced labor market participation.
- The acceleration of NGEU‑funded projects has already helped close Italy’s public‑investment gap with the Eurozone. These projects are acting as catalysts for long‑delayed upgrades in mobility, digital infrastructure and energy systems. With Italy still importing around 74% of its energy needs, the expansion of renewable capacity, grid reinforcement and diversified supply partnerships strengthens the case for these investments as key drivers of more resilient and sustainable long‑term growth, increasingly supported by public‑private partnerships.