ITALY REPORT

The macroeconomic picture

The state of national health emergency ended in 2022 (31 March), but elements of high criticality emerged during this year, generating new uncertainties. The sharp rise in energy and primary commodity prices affected economic development in Italy, with significant increases in production costs for businesses and consumer prices for households. Inflationary dynamics eased significantly in early 2023 for production prices, while it remained sustained although gradually decelerating for consumer prices. 

In May 2023, industrial producer prices fell by 2.3 percent on a monthly basis and by 4.3 percent on an annual basis. In June 2023, the Italian Consumer Price Index (CPI) for the whole nation, including tobacco, had a zero change on a monthly basis, and a 6.4 percent increase on an annual basis. The slowdown in the inflation rate was driven by the trend deceleration of prices of unregulated energy goods (from +20.3 percent to +8.4 percent).

The slowdown in the inflation rate was driven by a trend-based slowdown in  the prices of unregulated energy goods (from +20.3 percent to +8.4 percent).  In the same month, “core inflation”, net of energy and fresh food, slowed down but remained high (+5.6 percent). As also deepened in this Report, inflationary dynamics continued to spread significantly over some production chains and distribution channels. 

The evolution of inflation, according to Istat’s  forecasts   of early June 2023, is set to slow down gradually in the coming years following the fall in energy goods prices and restrictive policies implemented by central banks. A reduction in the dynamics of the deflator of household expenditure is estimated both in the current year (+5.7 percent) and, to a greater extent, in 2024 (+2.6 percent). The erosion of wage purchasing power has been substantial in 2022 and will continue in 2023-2024 if contracts are not promptly adjusted.

The performance of the Italian economy in 2022, however, was positive, both in terms of real growth and employment. GDP recovery continued throughout 6the year, with an average 3.7 percent year-on-year increase, higher than in France (+2.5 percent) and Germany (+1.8 percent). Growth was sustained by resident household expenditure and the particularly positive trend in gross fixed capital formation (+9.4 percent); this, in turn, was boosted by grants for home improvements and investments in more technologically advanced plants and machinery. 

Net foreign demand, on the other hand, made a negative contribution, due to the effects of the energy crisis. On the supply side, the most dynamic sectors were construction (+10.2 percent), trade, public establishments, transport, and telecommunications (+9.3 percent). Industry in the narrow sense remained almost stable, while agriculture declined (-1.8 percent).

The labour market trend has been positive. During 2022 and in early 2023, the increase in employment was accompanied by a decrease in unemployment and inactivity. In May 2023, the employed population (23.471 million) was higher than in spring 2008, before the great recession. The employment rate reached 61.2 percent in May (over two points higher than the average rate in 2008), the unemployment rate dropped to 7.6 percent, and the inactivity level remained stable at 33.7 percent.

Employment increased for men, women, and all age groups, except for the 35- 49 year olds. This age group, in fact, already showed the effects of the gradual decrease in the resident population of the size of cohorts born since the mid- 1970s. In relative terms, however, the employment rate also increased among the 35-49-year-olds, as the decline in employment in this age group was less pronounced than in the corresponding overall population.

In the first quarter of 2023, Italy’s GDP showed a higher short-term increase (+0.6 percent) than that of the Euro area (-0.1 percent), reflecting an increase in value added in the construction and service sectors (+1.5 percent and +0.8 percent, respectively) and a decline in industry in the narrow sense (-0.2 percent). On the demand side, while the domestic component made a positive contribution to GDP growth, net foreign demand continued to be negative.

According to Istat’s forecasts released in early June, albeit conditioned by strong uncertainty, Italy’s GDP is expected to grow, both in the current year (+1.2 percent) and in 2024 (+1.1 percent), but at a slower pace than in the previous two years. The increase in GDP will be supported mainly by domestic demand and, to a lesser extent, by net foreign demand, which will benefit from the end of the most acute phase of the energy crisis. Investments will mark a 3.0 percent increase (a lower rate than that recorded in the previous two years), to finally decelerate the following year (+2.0 percent). The slowdown in investment dynamics compared to 2022 is conditioned by the expiration of construction incentives; by contrast, between 2023 and 2024, investments related to the gradual implementation of the NRRP will strengthen.The demographic outlook and its long-term effects on the Country’s ability to grow

On the demographic front, the decline in the number of residents, which started at the end of 2014, continued in 2023, because of largely negative natural change (more deaths than births), increasingly less offset by the positive effects of migration balances. Evidence showed that during the first four months of this year, births have continued to decline, down by 1.1 percent less over the same period of the previous year. Deaths declined by 8.3 percent in contrast to the sharp increase that had dramatically characterised the previous three years.

Several contingent factors affected demographic trends in 2022: the end of the state of health emergency, which gave new impetus to domestic and international migration; an increase in the number of individuals seeking humanitarian protection from the war in Ukraine; and excessive heat in the summer months, which resulted in a new spike in deaths in the elderly population. As of 31 December 2022, there were 58,851,000 residents in Italy, 179,000 less than at the beginning of the year. Foreign nationals numbered 5,050,257, i.e. 8.6 percent of residents, 51 percent of whom were women, slightly up from 2021. 

As for the natural balance of births and deaths, 2022 was marked by a new record low in births (393 thousand, under 400 thousand for the first time since the Unification of Italy) and a high number of deaths (713 thousand). In 2022, entries in the Registry Office from abroad amounted to 361 thousand, with a major boost also coming from migration movements due to the war in Ukraine that broke out at the end of February that year. 

The presence of a stable Ukrainian community (225 thousand registered at the end of 2021) explains why Italy exerted a pull effect on refugees from the war. The slowdown in outflows, which started in   the pandemic year, continued in 2022, although there were no constraints on movement. Cancellations from the Registry Office of Foreigners fell to 132,000.

Fertility of the resident population has returned to 2020 levels (1.24 children on average per woman in 2022) but remained below the pre-pandemic period (1.27 in 2019). Persistent low fertility is one of the hallmarks of Italian demographic evolution, which has caused a consistent decline in the number of potential parents in recent decades, in turn, responsible for the sharp decline in births we observe today. In the transition from the generation of parents (“baby boomers”) to that of their children (born in the mid-1990s), numbers have almost halved. The evolution of the average number of children per woman in Italy continues to be influenced by the postponement of the childbearing age. The average age at first childbirth for women living in Italy increased by 12 months from 2010 to 2020, while it remained stable in 2021 and 2022, at 32.4 years.

Regarding longevity, population survival levels in 2022 remained below pre- pandemic levels, with a loss of more than 7 months in terms of average years lived, compared to 2019 among both men and women. The estimated life expectancy at birth was 80.5 years for men and 84.8 years for women. As of 2021, men had recovered about 2.5 months of life expectancy. For women, however, this value remained unchanged compared to 2021.

The slowdown in the growth rate of women’s life expectancy had already started 8 before 2020, but the pandemic reinforced this trend. The impact of the crisis on the health care system, and the resulting difficulty in scheduling medical check- ups and examinations, was more pronounced for women, who are keener on prevention than men.

In 2022, life expectancy at the age of 65 was estimated at 18.9 years for men and 21.9 years for women. The comparison with the previous year shows once again that only men gained (+0.1), while women lost one decimal point. When compared to 2019, a loss of about six months for men and more than eight months for women persisted, further confirming that the pandemic had negative effects, especially among the elderly and the female population.

Despite the high number of deaths recorded in the past three years, (over 2 million 150 thousand), 89.7 percent of which were over 65, the average age of the population rose from 45.7 at the beginning of 2020 to 46.4 in early 2023. As of 1 January 2023, people over 65 were 14.177 million, 24.1 percent - nearly   a quarter - of the total population. The number of people over 80 has also grown, reaching 4.529 million and accounting for 7.7 percent of the population. 

The estimated number of over 100-year-olds reached its highest historical level, reaching 22,000 units, over 2,000 than in the previous year. Since the beginning of the millennium, their number has tripled. In contrast, individuals   of working age (15-64 years), decreased to 37.339 million (63.4 percent). The number of younger people also decreased: children up to 14 numbered 7.334 million (12.5 percent of the total resident population). Forecasts suggest a substantial increase in the so-called “older adults”.