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Italy Economy

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The Italian economy has changed dramatically since the end of World War II. From an agriculturally based economy, it has developed into an industrial state ranked as the world's sixth-largest market economy. Italy belongs to the Group of Eight (G-8) industrialized nations; it is a member of the European Union and the Organization for Economic Cooperation and Development (OECD).

Italy has few natural resources. With much land unsuited for farming, Italy is a net food importer. There are no substantial deposits of iron, coal, or oil. Proven natural gas reserves, mainly in the Po Valley and offshore in the Adriatic, constitute the country's most important mineral resource. Most raw materials needed for manufacturing and more than 80% of the country's energy sources are imported. Italy's economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. Its major industries are precision machinery, motor vehicles, chemicals, pharmaceuticals, electric goods, and fashion and clothing.

Italy continues to grapple with budget deficits and high public debt--2.6% and 105.9% of GDP for 2008, respectively. Italy joined the European Monetary Union in 1998 by signing the Stability and Growth Pact, and as a condition of this Euro zone membership, Italy must keep its budget deficit beneath a 3% ceiling. The Italian Government has found it difficult to bring the budget deficit down to a level that would allow a rapid decrease of that debt. The worsening of the economic situation is expected to jeopardize this effort. The deficit is expected to grow well above the 3% ceiling in 2009 and 2010.

Italy's economic growth averaged only 0.8% in the period 2001-2008; 2008 GDP decreased 1.0%, largely due to the global economic crisis and its impact on exports and domestic demand. GDP is expected to contract further, with a huge decrease in 2009 (ranging from 2% to 3%) as the Euro zone and world economies slow.

Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 60.1% of its total trade (2007 data). Italy's largest EU trade partners, in order of market share, are Germany (12.9%), France (11.4%), and the United Kingdom (5.8%). Italy continues to grapple with the effects of globalization, where certain countries (notably China) have eroded the Italian lower-end industrial product sector.

The Italian economy is also affected by a large underground economy--worth some 27% of Italy's GDP. This production is not subject, of course, to taxation and thus remains a source of lost revenue to the local and central government.


Information by U.S. Department of State


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