Italy's economy grows slowly as a strong euro tests its exporters

Italy's economy is not in crisis. It is in something subtler and, for a country with a large export sector, more awkward: slow growth and a currency that keeps appreciating. The numbers in front of us tell that story plainly. GDP grew by roughly half a percentage point in 2025, inflation ran at about 1.5 percent, and unemployment stood at 6.4 percent. None of those figures describes an emergency. Together they describe an economy that is stable, disinflating and expanding too slowly to change the lives of the people in it.

The exchange rate is where the tension sits. The euro traded at 1.1403 dollars on 25 September, down from 1.1645 a month earlier — a move of about two percent in a single month. A stronger euro makes Italian goods more expensive for buyers in the United States, Italy's largest non-European market, and it compresses the euro value of revenue earned abroad. For a manufacturer in Lombardy or a machinery exporter in Emilia-Romagna, that is not an abstraction. It is the difference between holding a contract and losing it to a competitor pricing in dollars or yuan.

The euro's strength is broad, not just a dollar story. Against the Swiss franc it stands at 0.9445, against sterling at 0.86045, against the yen at 179.7, and against the Chinese renminbi at 7.6551. Each of those pairs matters to a different part of the Italian economy: the franc to Alpine trade and cross-border workers, sterling to tourism and food exports, the renminbi to the machinery and luxury goods that compete with Chinese producers at home and abroad. A currency that rises against all of them at once is a tax on competitiveness that no domestic policy can offset.

Inflation at 1.5 percent is below the European Central Bank's two percent target, and that is a mixed blessing. It protects household purchasing power and keeps borrowing costs contained, which matters enormously for a country carrying a large public debt. But it also signals weak domestic demand. When prices barely rise, firms have little room to raise wages, and consumers have little reason to bring forward spending. The Italian economy is, in effect, running below its potential — not overheating, not collapsing, simply idling.

Unemployment at 6.4 percent is the most encouraging figure in the set, and it deserves to be read carefully. It is low by Italy's own historical standards, and it reflects genuine job creation in services and construction. But a headline rate understates the country's labour problem. Italy's participation rate remains among the lowest in the eurozone, particularly among women and in the south, and the unemployment figure is flattered by emigration of working-age Italians. A low unemployment rate in a shrinking labour force is not the same as a thriving job market.

The debt ratio in the data — 77.3 percent of GDP — is dated 1992 and should not be read as today's figure. It is a historical marker, and it is useful precisely because it shows how far the ratio has travelled since. Italy's public debt is now among the highest in the eurozone, and the combination of slow growth and low inflation makes it harder to reduce. When nominal GDP grows by only a little more than one percent, the arithmetic of debt reduction becomes unforgiving: even a modest primary surplus can be swamped by the interest bill.

The foreign coverage this week has been dominated by the government's school decree and the Pope's visit to France, not by economics. But the two are not unconnected. The Guardian reported that critics accuse the Prime Minister of courting far-right voters ahead of next year's election, and the BBC noted the government's own framing of the measures as integration tools. Election years tend to produce spending promises, and Italy enters this one with limited fiscal room. The euro's strength and the debt burden together mean that any pre-election loosening will be scrutinised by bond markets more closely than by voters.

What the world's institutions are effectively saying about Italy is that its problems are no longer acute. The spread is contained, inflation is tame, unemployment is down. What remains is the harder, slower work: raising productivity, bringing more people into the labour force, and managing a currency that makes the country's exports more expensive every month. None of that is a crisis. All of it is the reason Italy grows at half a percent while its neighbours grow faster.