The Italian economic outlook has been marked by increasing uncertainty and the potential impacts of protectionist measures, as detailed in a recent report by Confindustria.

The report indicates that tariffs could lead to a reduction of 0.6 percentage points in Italy's GDP in a scenario that already anticipates a considerable slowdown, with projections for GDP growth at 0.6% in 2025, revised down from the previously estimated 0.9%.

The reintroduction of U.S. tariffs on steel and aluminum at 25% is expected to decrease U.S. exports of these materials by approximately 5%, with a minor macroeconomic impact, estimated at around -0.02% on Italy's total goods exports.

However, the report also outlines a more severe scenario wherein a persistent increase in uncertainty could dramatically affect Italy's GDP. If tariffs were applied at 25% on all U.S. imports, including those from Europe, and at 60% on imports from China, the cumulative negative impact on Italy's GDP could reach -0.4% in 2025 and -0.6% in 2026.

Italy's exports to the United States reached €65 billion in 2024, representing over 10% of the total.

The country saw a cumulative increase of 30% in exports between 2019 and 2023, contributing 4.5 percentage points to this growth.

Sectors particularly vulnerable to these tariffs include beverages, pharmaceuticals, and automotive industries.

The report characterizes the emerging 'America First' trade policy under the second Trump administration as more aggressive and unpredictable than its predecessor.

According to the report, initiating negotiations with the U.S. to reconcile mutual needs is critical, alongside enhancing the attractiveness of Europe to curb capital outflows to the U.S.

Surging uncertainty stemming from tariff announcements has led to a peak in economic and political uncertainty indices, adversely impacting investment decisions and global supply chain interactions.

Since 2022, more than 3,400 protectionist measures have been implemented globally each year, a significant increase from pre-2020 levels.

An escalation of protectionist sentiments among major global economies could undermine the foundational structure of international trade and production, reflecting deeply on global GDP levels.

Investment trends show an anticipated decline of 0.8% this year, aligning with a downward trend observed in the latter half of 2024. Projected recovery is expected in 2026, with a growth rate of 0.9%, reflecting stagnation over the two-year period.

European competitiveness is reported to remain low, causing a gradual loss of ground to the United States and China.

Since 2007, the European Union has experienced an average annual growth of 1.6%, compared to 4.2% for the U.S. and 10.1% for China at current prices.

The competitiveness gap with the U.S. has accumulated to over 70 percentage points of GDP, to which bureaucratic burdens—highlighted by reports indicating over 13,000 regulatory acts approved by the EU between 2019 and 2024—contribute significantly, elevating operational costs for businesses.

Despite stability in employment levels, which increased by 4.7% from 2023 to 2024 relative to a 1.4% GDP growth, concerns persist regarding the sustainability of this stability in the face of weak production levels.

A survey found that 34.7% of major enterprises were retaining employees, indicative of cautious labor market management.

The overall economic situation in Italy reflected a 0.7% annual growth in 2024 due to diverse contributions from consumer spending, gross fixed investments, collective consumption, and net exports, counterbalancing inventory depletions.

Projections for 2025 suggest modest growth of 0.6%, taking into account the economic weakening during the latter part of 2024 and the deteriorating macroeconomic environment.

Positive factors anticipated to influence the 2025-2026 economic landscape include continued interest rate reductions by the European Central Bank, rising real disposable income from wage recovery, robust non-labor income contributions, rising total employment, and falling inflation rates.

The implementation of Italy’s National Recovery and Resilience Plan (Pnrr), with approximately €130 billion earmarked between 2025 and 2026, is expected to contribute positively, particularly towards construction investments.

Challenges also loom, including inadequate support for investments in plant and machinery, highlighted by the limited effectiveness of the Transition 5.0 Plan, and recurrent energy price increases, which while not as high as the peaks observed in 2022, still pose risks to corporate competitiveness and household disposable income.

The Italian industrial sector continues to face significant challenges, with evidence suggesting that its decline may become structural.

Between mid-2022 and the end of 2024, Italy has experienced an 8.2% reduction in production.

This crisis extends beyond Italy, with varied impacts across sectors.

Notably, the automotive sector is among the hardest hit across Europe, alongside declines in fashion and metalworking industries.

In contrast, if manufacturing output is analyzed excluding these sectors, a moderate decrease of 1.5% is observed in Italy for 2024, compared to a 2.6% reduction in Germany and a 1.6% increase in Spain.

Current market conditions reveal weak demand across the Eurozone, further exacerbated by high inflation and elevated interest rates.

Changes in consumer preferences from goods to services also contribute to diminished industrial demand, compounded by rising energy costs in Europe.

While some sector-specific issues may resolve in the short to medium term, persistent challenges such as energy costs and supply chain crises in automotive and fashion sectors are expected to endure.

The report emphasizes that the crisis within Italy's industry is primarily one of production rather than value-added, with output declining 3.5% over the same timeframe, yet employment within pressured sectors has nonetheless increased.

The reasons behind this dichotomy may include a reduction in inventories of intermediate goods and a shift towards higher value-added manufacturing sectors.

Future data releases are anticipated to provide enhanced clarity on these trends.