In 2025, theItalian economy moves in an international context more than ever uncertain, dominated by trade and geopolitical tensions that are testing the growth , financial stability of the country. This is the picture drawn by the Relationship on the budget policy of theParliamentary Budget Office (Upb), presented today in the Senate by the president Lilia Cavallari, who with a mix of caution and realism has outlined the Italian prospects in the global framework.
Despite the headwinds, President Cavallari wanted to instil a bit of sober optimism: Italian growth "is not inevitable" and can be supported by a more decisive implementation of the reforms and investments, even beyond the horizon of the National Recovery and Resilience Plan (PNRR), as well as from a job market more dynamic, provided that participation is increased and qualified workers are attracted.
A “not so peaceful” global economy
La trade war, particularly that initiated by the United States, continues to raise the duties and create new barriers that weigh on many productive sectors, including in Italy. Cavallari stressed that this scenario is “rapidly worsening” and that, although the negative impacts vary from sector to sector and from country to country, the forecast is clear: no one remains immune.
Estimates of the economic impact of new trade barriers indicate adverse effects, highly differentiated, and their quantification is subject to margins of uncertainty, linked to the duration of the duties, retaliation by other countries and the reactions of markets, businesses, families and central banks. The Minister of Economy Giancarlo Giorgetti he defined the context as “very complicated” and pointed out how the high cost of uncertainty has scaled down growth estimates for the coming years, while reiterating that the GDP growth target for 2025 remains “fully achievable and hopefully surpassable”.
In our country, the most affected sectors are pharmaceutica, mining industry e production of motor vehicles, with consequences also on theoccupation in traditionally strong sectors such as metalworking and textiles, and repercussions on professional services such as law firms, engineering, architecture, accounting and personnel management. The Upb estimates that the combined effect of these tensions will reduce GDP by about 0,2 points in 2026 e by 0,1 points in 2027.
Upb: Moderate but not inevitably weak growth
In 2024, the growth of GDP stood at 0,7%, below the Eurozone average (0,9%), accompanied by a modest increase in consumption (+0,4%) and a slowdown in investments (+0,5%). L'inflation has remained around 1%, with a rise towards 2% in recent months. Theoccupation grew by 1,6%, with the unemployment rate falling to 6,5%. wages contractual rose by 3%, exceeding inflation but remaining below 2021 levels in real terms.
The Parliamentary Budget Office, in detail, provides moderate growth for 2025 of the Italian economy, in line with the Mef, with a timid acceleration in the following years. But be careful: the picture remains uncertain and marked by risks mainly to the fall.
On the domestic front, strong pressure remains uncertainties on the implementation of the Pnrr, which must be concluded by 2026. Until that date, economic activity will be supported by the progressive decline in inflationary pressures, by the stability of employment and by the push of investments linked to the Plan.
The consumption deflator is expected to grow to 2,2% in 2025, with a moderate slowdown in the following years. The vulnerability to external shocks such as wars, geopolitical tensions and, in particular, trade protectionism, which could compromise the stability and growth of the country.
Public Finance: Prudence and Responsibility
On the front of the fpublic finance, the line of prudence and responsibility has borne fruit: in 2024 the deficit fell to 3,4% of GDP, almost halved compared to 7,2% in 2023, and the primary balance returned to positive (0,4%). This is also thanks to a drop in the costs of the Superbonus and higher tax revenues, especially fromPersonal income tax. However, public debt has risen again to 135,3% due to accumulated construction tax credits.
The Upb also underlines that the new Irpef structure, while stabilising the tax wedge cut, has increased the tax drag. In practice, the increase in wages linked to inflation pushes many workers to pay more taxes, because they move to higher Irpef brackets. This reduces real purchasing power, especially for employees and middle-class families, risking slowing consumption and internal demand. A boomerang effect which can slow down economic growth.
The 2025 budget and the fiscal issues
La budget package last year has exploited almost all the available space for spending, introducing structural measures such as the reduction of social security contributions for employees and the merging of Irpef tax rates at least until 2024. However, the Upb warns that it will be crucial to maintain a decisive action against thetax evasion, which in Italy remains among the highest in Europe, despite significant recent improvements, especially in the VAT area.
PNRR and investments, between delays and hopes
Another important unknown is the implementation of the PNRR. According to the Upb, there is a “significant risk” which part of the expected expenditure to be postponed to 2027, with effects that in the short term would slow down the growth (minus 0,3 points in 2026) but which would be compensated by a recovery the following year. Overall, cumulative growth up to 2028 would remain unchanged.
Defense: More spending, but with an eye on debt
In the European panorama, the Commission has pushed for an increase in investments in defense, and Italy responded with a 2025 budget law that provides for a significant increase in spending: +3,9 billion in 2025, to reach over 31 billion annually in the future. Despite this, Italian defense spending remains below the EU average if one considers the standard criteria, and far from that of some Eastern European countries. The Upb warns that the increase will have to be balanced with the sustainability of the debt, now at 135,3% of GDP, to avoid compromising financial stability.
Structural challenges: environment and demography
Two significant structural challenges should not be underestimated: trends demographic, with a contraction in births and internal migrations that accentuate territorial gaps (decline in the South, growth in the North), and the change climatic, which affects the different areas of the country in a heterogeneous way. Italy, like other Mediterranean countries, is among the most exposed to the effects of climate change and has limited fiscal space to adapt, worsening regional inequalities.
