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Productivity growth declined in Italy since the second half of the 1990s, when it was close to 1%, to stagnate around 0% on average since 2010, says Scope Ratings.

“Achieving the government’s assumed long-term productivity growth for 2025-50 of around 1.4% which underpin its medium- to long-term pension and health-care projections, would require a persistent productivity increase between 1.2pp and 1.4pp, on average, over the next 30 years for all regions; a level not observed since the 1990s,” says Alvise Lennkh-Yunus, deputy head of sovereign ratings at Scope.

“While Next Generation EU funds of EUR 192bn over 2021-26 could provide an important boost, together with the European structural and cohesion funds of around EUR 43bn, the scale of the challenge and the political commitment needed to sustain reform momentum after next year’s election are concerns,” says Lennkh-Yunus.

Italy’s productivity growth rates have not exceeded 1.0% over five years since the 1990s and have thus averaged 0.84pp less than that of the euro area over the past 20 years.

Figure 1: Italy’s annual labour productivity levels vs EA, values indexed to 1995
GDP-per person-employed

Source: Istat, DG ECFIN AMECO, Scope Ratings GmbH

At the same, productivity varies significantly across Italy. National and regional levels of GDP-per-person employed were higher in 1995 compared with 2019, with labour productivity in the north remaining the highest, with the gap to the rest of Italy higher today compared with 20 years ago.

“The north-south gap in GDP per person employed widened from EUR 17.500 in 1995 to EUR 20.100 in 2019, while the north-centre gap also widened from EUR 5.100 to EUR 8.200,” says Giulia Branz, analyst at Scope. “Critically, this widening gap is not because the north improved its productivity levels, but rather due to productivity declining in the rest of Italy,” says Branz.

This reflects structural weaknesses related to infrastructural gaps, the inefficiency of the public administration, labour market rigidities and low investments in human capital that have always weighed more heavily on the centre and south, despite reforms introduced over past decades.

The implementation of the National Recovery Plan endorsed by the EU will provide Italy with EUR 191.5bn of resources to facilitate a more stable, homogeneous and long-lasting recovery. Reversing a history of weak productivity and overcoming regional divergences is, in fact, fundamental for the country to meet long-term challenges.

“However, the government cannot rely only on the Recovery Plan to boost southern economic growth and productivity. Continued central government intervention, reform implementation effort and increasing the level of public investment are vital as is deploying European structural and cohesion funds over a multi-year period,” says Alessandra Poli, analyst at Scope.