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In recent years, the Italian economy has shown surprising resilience and dynamism, in some respects even surpassing Germany, traditionally considered the driving force of Europe.
This result is particularly significant if we consider the global economic context characterized by uncertainties and challenges, as well as the halt to extraordinary measures such as the Superbonus, which had given a significant boost to the Italian construction sector. The comparison between the two economies highlights not only the structural differences, but also the different growth strategies adopted by the two countries. According to Istat data, the Italian Gross Domestic Product (GDP) recorded an increase of 0.2% in the second quarter of 2024 compared to the previous quarter, and of 0.9% in trend terms. These results, although modest in absolute terms, represent a positive signal for the Italian economy, especially when compared with those of Germany. The German economy, in fact, contracted slightly by 0.1% in the same period, after a weak increase of 0.2% in the first quarter. This trend reflects a persistent stagnation of the German economy, aggravated by factors such as slowing domestic demand, rising energy and labour costs, and a climate of uncertainty that has led companies to delay their investment decisions.
Germany, which for decades has led European economic growth, is now in a phase of structural difficulty. The causes of this stagnation are complex and interconnected. Among the main ones, we highlight the weakness of investments in key sectors such as construction and equipment, as well as the negative impact of high energy costs on the manufacturing industry, which has traditionally represented the beating heart of the German economy.
The role of the service sector in Italy
In contrast to Germany, Italy has seen greater dynamism in the service sector, which has offset the decline in value added in sectors such as agriculture, forestry, fishing and industry. This shift towards a service-driven economy has been crucial to Italian growth, and tourism has played a leading role in this context.
In fact, tourism has been one of the most resilient and dynamic sectors of the Italian economy in recent years. In 2023, Italy recorded the highest values ever in the balance of payments for tourism, and this trend continued in 2024, with significant growth in the first quarter. This sector has contributed not only to GDP, but also to employment, providing essential support in a period of great economic uncertainty. One of the key elements that had supported the Italian economy in previous years was the Superbonus, a government initiative aimed at incentivizing the energy and seismic requalification of buildings. This program had given a significant boost to the construction sector, contributing significantly to GDP growth. However, the Superbonus also raised concerns about its impact on public finances, as it was considered a costly measure and difficult to sustain in the long term.
With the end of the Superbonus, a slowdown was observed in the construction sector, which nevertheless continued to benefit from the residual effects of previous measures. According to the Parliamentary Budget Office (UPB), industrial production in Italy has been declining since the end of 2022, and no reversal of the trend is expected in the short term, both in manufacturing and construction. However, the Italian economy has shown some capacity to adapt, with other sectors partially compensating for this decline.
Challenges and future prospects for Italy
Despite the positive signs, the Italian economy is not free from challenges. Industry, in particular, continues to suffer from persistently high energy costs, which have reduced the competitiveness of Italian companies on international markets. Furthermore, economic uncertainty remains high, with households and businesses still cautious in their spending and investment decisions.
Growth expectations for the coming quarters are strongly linked to the decisions that will be taken with the next budget law, as well as to the implementation of the National Recovery and Resilience Plan (PNRR). This plan, largely financed by European funds, is seen as one of the main levers to support economic growth in the medium term, through investments in infrastructure, digitalization and energy transition. In terms of tax revenues, the Italian budget shows positive signs. The latest update contained in the budget adjustment highlights an increase of 24.7 billion euros compared to the initial forecasts, with a significant increase in revenues from personal income tax and corporate income tax, although VAT has contracted. This improvement in revenues could provide the government with greater flexibility to implement measures to support economic growth.
The crisis of the German economy: causes and consequences
The crisis that the German economy is going through cannot be underestimated, considering the central role that Germany has always had in the European economy. According to the Ifo index, which is a key indicator followed by financial markets, the German economy appears “blocked by the crisis”, and no significant improvement is expected in the third quarter of 2024. This state of stagnation is particularly evident in the industrial sector, where companies are delaying investments due to high economic uncertainty. The causes of this crisis are multiple. In addition to the factors already mentioned, such as high energy costs and slowing domestic demand, Germany is facing a series of structural challenges. These include the energy transition, which is imposing high costs on businesses, and growing global competition, which is eroding Germany’s dominant position in sectors such as automotive and precision mechanics.
The slowdown of the German economy has significant implications for the entire Eurozone. Germany, as the largest economy in the Eurozone, has traditionally driven the bloc’s economic growth. However, with Germany struggling, the burden of growth could shift to other countries, including Italy. This represents an opportunity for Italy to strengthen its role within the Eurozone, but it also requires careful management of economic and fiscal policies to avoid incurring the same difficulties that are currently holding back Germany.
Italy must address its internal challenges, including the need to improve productivity and reduce public debt, but it can also use the opportunities offered by the German crisis to consolidate its growth. The services sector, in particular, offers significant potential, especially if supported by investments in infrastructure and digitalization. Furthermore, Italy can benefit from the growing global demand for tourism and high-quality products, sectors in which the country has a strong position. The comparison between the Italian and German economies highlights a change in European economic dynamics. Italy, despite structural difficulties and the halt to measures such as the Superbonus, has demonstrated a surprising capacity for growth, driven above all by the services sector and tourism. On the contrary, Germany is facing a crisis that could have long-term implications for its economy and for the entire Eurozone.
This scenario offers Italy a unique opportunity to strengthen its role within Europe, but it also requires careful management of economic policies to support growth in the coming years. With the support of the PNRR and prudent management of public finances, Italy can continue to grow and strengthen its position in the European context, becoming a key player in the economic recovery of the Eurozone. To fully seize this opportunity, Italy will have to focus on structural reforms that improve competitiveness and innovation, making the most of European funds and promoting an environment conducive to investment. Only in this way will it be able to consolidate its growth and contribute to a more balanced and prosperous Europe.
Alessandro Fiorentino