Italy's economy barely moves as euro slides against the dollar

The Italian economy grew at less than half a percentage point in 2025, according to the latest World Bank data, a rate that places it among the slowest-moving large economies in the eurozone. For context, this means an economy of nearly 60 million people added growth equivalent to what a mid-sized city might generate. The figure reflects a pattern that foreign analysts have tracked for years: Italy's productivity gains lag its peers, its workforce is ageing, and young Italians continue to emigrate in search of better prospects abroad.

Inflation, by contrast, has cooled to 1.53 per cent, well below the European Central Bank's target of 2 per cent and a marked decline from the spike that followed Russia's invasion of Ukraine. This disinflation offers some relief to households and businesses, yet it has not translated into robust demand or investment. The unemployment rate stood at 6.39 per cent in 2025, a figure that masks regional disparities: the North has fared better than the South, where joblessness runs considerably higher.

The euro has weakened against the dollar over the past month, trading at 1.1418 to the greenback as of 21 July, down from 1.1456 a month earlier. This depreciation can help Italian exporters by making their goods cheaper for foreign buyers, though it also raises the cost of imports and erodes the purchasing power of Italians buying goods priced in dollars or other strong currencies. The euro has held relatively steady against sterling and the Swiss franc, suggesting the weakness is more a function of dollar strength than eurozone fragility.

Italy's public debt remains a structural concern for the international financial system. At 77.3 per cent of gross domestic product, it is among the highest in the developed world, a legacy of decades of fiscal transfers to the South, pension obligations, and the costs of managing the 2008 financial crisis and the pandemic. The European Commission and the International Monetary Fund monitor Italian bond spreads closely; any sharp widening would signal market anxiety about the country's ability to service its debt.

The combination of anaemic growth, moderate inflation, and currency headwinds presents a puzzle for policymakers. Stimulus risks reigniting price pressures; austerity risks deepening stagnation. Italy's path forward depends on productivity gains that have proven elusive: investment in infrastructure, education, and digital capacity, and a reversal of the brain drain that has depleted the country of talent for a generation.