Italy

Italy's Residential Property Market Analysis 2025

Lalaine C. Delmendo
Last update:
Next update: May 2026

Italy’s housing market is improving, driven by gradually increasing demand and a limited supply amid weak residential construction. Yet, overall economic conditions continue to weigh on the market.

This extended overview from the Global Property Guide covers key aspects of Italy’s housing market and takes a closer look at its most recent developments and long-term trends.

Table of Contents

Housing Market Snapshot

Nationwide, the latest figures from the National Institute of Statistics (ISTAT) showed that the overall house price index rose by a modest 3.93% in Q2 2025 from a year earlier, following year-on-year increases of 4.42% in Q1 2025, another 4.42% in Q4 2024, 3.77% in Q3 2024, 2.94% in Q2 2024, and 1.59% in Q1 2025. It was the country's 24th consecutive quarter of year-on-year house price growth. When adjusted for inflation, prices were up by 2.17% over the same period.

Quarter-on-quarter, nationwide house prices increased by 2.74% (also up by 2.38% when adjusted for inflation) in Q2 2025.

Italy's house price annual change:

Note: Italy's House Price Index: All Residential Dwellings (2015 = 100)
Data Source: European Central Bank (ECB).

By submarket:

  • New house prices rose slightly by 1.08% (but fell slightly by 0.63% inflation-adjusted) y-o-y in Q5 2025. It was a sharp slowdown from the prior year's strong growth of 8.08% and the lowest increase since Q2 2023. Quarter-on-quarter, prices increased by 4.38% (4.01% inflation-adjusted).
  • Existing house prices were up by a moderate 4.43% (2.66% inflation-adjusted) in Q2 2025 from a year earlier and increased by 2.44% (2.08% inflation-adjusted) from the previous quarter.

"According to the survey conducted among a sample of real estate agents from 16 June to 16 July 2025, house prices were still growing in the second quarter of this year, albeit to a more moderate extent than in the previous quarter," said Banca D'Italia's Q2 2025 Housing Market Survey. "The average discount compared to the initial requests of sellers and the time to sell recorded a slight increase, although they remained at levels close to the lowest levels since the beginning of the survey."

However, the latest data from Idealista, which provides monthly estimates based on active residential property listings across Italy, tells a different story. Nationwide house prices fell by 1.5% year-on-year in October 2025, averaging €1,828 (US$2,125) per square meter (sqm). When adjusted for inflation, house prices declined by 2.7% over the same period.

In Rome, Italy's capital and largest city, home prices stood at an average of €3,237 (US$3,762) per sqm in October 2025, up by a meager 0.2% from the previous month and higher by 5.8% from the same period last year.

Milan, Venice, and Bolzano have the most expensive housing in the country, with average house prices currently at €5,188 (US$6,030), €4,792 (US$5,579), and €4,685 (US$5,445) per sqm, respectively.

Demand is now showing some signs of improvement. During 2024 (the latest figures available in ISTAT), sales of real estate units and other kinds of property transactions reached a total of 950,240, up slightly by 0.9% from the preceding year. Of the total transactions last year, transfers of residential properties accounted for about 93.7% of the total share.

The slight increase last year followed an annual decline of 6.6% in 2023 and increases of 2.7% in 2022 and 32.9% in 2021.

Despite improving demand, supply remains limited because of weak residential construction activity. In the first half of 2025, the total number of dwellings in authorized new residential buildings in Italy fell sharply by 12.3% to 24,731 units as compared to the same period last year, according to ISTAT figures. This followed annual declines of 0.2% in the whole year of 2024 and 7.7% in 2023, and increases of 0.1% in 2022 and 21.9% in 2021. Similarly, the total floor area of new residential building permits in Italy dropped 7% y-o-y to 2.19 million sqm in H1 2025.

Outlook for the real estate market remains favorable, according to Banca D'Italia. "Expectations for the real estate market in the current quarter are less optimistic than three months ago but remain overall better compared with the corresponding quarter of 2024, both in agents' local markets and at the national level."

Italy's broader economy had been sluggish in the past two years, amidst a decline in fixed investment and international trade. During 2024, the eurozone's third-largest economy grew by a measly 0.7% from a year earlier, at par with the preceding year's expansion.

Then in the third quarter of 2025, the economy grew by another meager 0.4% from the same period last year, following expansions of 0.4% in Q2 and 0.7% in Q1, according to figures from ISTAT. Quarter-on-quarter, real GDP registered zero growth in Q3 2025.

Italy's economic outlook remains highly uncertain, weighed down by ongoing geopolitical tensions, potential US trade tariffs, and persistent challenges in effectively utilizing its EU pandemic recovery funds.

"Heightened uncertainty has dampened the near-term economic outlook, while subdued productivity growth and rapid population aging are expected to continue weighing on growth prospects. Timely and effective implementation of the National Recovery and Resilience Plan (NRRP) projects is expected to support near-term economic activity, while trade tensions are likely to provide a notable drag," said the International Monetary Fund (IMF) in its Staff Concluding Statement of the 2025 Article IV Mission.

With this, the European Commission projects the Italian economy to grow by just 0.7% this year and 0.9% in 2026. The IMF, on the other hand, released a more conservative growth forecast for Italy of about 0.5% and 0.8% in the next two years.

ISTAT's economic outlook aligns closely with these projections, anticipating growth of 0.6% this year and a further 0.8% in 2026.

Italy's GDP per capita, a key economic indicator for the standard of living of Italians, stood at around US$40,224 in 2024, up by nearly 12% from a decade ago, based on figures released by the IMF.

Italy GDP Per Capita graph

Local house price variations

Milan, Italy's second most populous city, has recently overtaken Venice as the most expensive city in the country, with an average house price of €5,188 (US$6,030) per sqm in October 2025, up by a modest 3.1% from a year earlier, according to national listing portal Idealista. Month-on-month, prices were up slightly by 0.9%.

In Venice, known as the "City of Canals" and one of Italy's most picturesque cities, the average house price rose by 5.2% y-o-y to €4,792 (US$5,579) per sqm in October 2025. Month-on-month, prices were up slightly by 1.2% over the same period.

In Rome, Italy's capital and largest city, home prices stood at an average of €3,237 (US$3,762) per sqm in October 2025, up by a meager 0.2% from the previous month and higher by 5.8% from the same period last year.

Italy Average House Prices graph

In other major Italian cities:

  • Bolzano, a gateway to the Dolomites mountain range in the Italian Alps, has one of the most expensive housing markets in the country, with the average price of homes reaching €4,685 (US$5,445) per sqm in October 2025. Prices were down slightly by 0.1% compared to the previous month but up by 2% from a year earlier.
  • In Turin, the average price of homes increased by a modest 4.2% in October 2025 from a year earlier, to €1,980 (US$2,301) per sqm in October 2025. Though, prices were up by just 0.7% compared to the previous month.
  • In Bologna, home prices averaged €3,651 (US$4,244) per sqm in October 2025, up by 0.5% from the previous month and by 2.6% from the same period last year.
  • In Florence, house prices rose strongly by 8.3% y-o-y to an average of €4,514 (US$5,247) per sqm in October 2025. Month-on-month, however, prices were down slightly by 0.6%.
  • In Naples, Italy's third biggest city, home prices fell slightly by 0.4% y-o-y to an average of €2,798 (US$3,252) per sqm in October 2025. Month-on-month, prices were up by 1.5%.
  • In Palermo, house prices averaged €1,406 (US$1,634) per sqm in October 2025 - slightly higher by 0.3% from the previous month and by 0.7% from a year earlier.
  • In Genoa, the average price of homes rose slightly by 0.4% y-o-y to €1,426 (US$1,657) per sqm in October 2025. Month-on-month, prices were up by 0.9%.
  • In Catania, house prices were up by 2.2% y-o-y to €1,239 (US$1,440) per sqm in October 2025. Month-on-month, prices rose by 1.6%.

Demand Highlights:

Home sales gradually improving; demand shifting to larger homes

Real estate activity is now showing some signs of improvement. During 2024 (the latest figures available in ISTAT), sales of real estate units and other kinds of property transactions reached a total of 950,240, up slightly by 0.9% from the preceding year.

Of the total transactions last year, transfers of residential properties accounted for about 93.7% of the total share.

The slight increase last year followed an annual decline of 6.6% in 2023 and increases of 2.7% in 2022 and 32.9% in 2021. Demand started to slow in the second half of 2022, amidst surging inflation and global economic slowdown.

By region:

  • In the Northwest, real estate sales rose by 3.3% to 324,341 units in 2024 from a year earlier, following an annual contraction of 6.1% in 2023 and a meager growth of 0.2% in 2022.
  • In the Northeast, the total number of real estate sales increased slightly by 0.6% y-o-y to 201,549 units in 2024, after declining by 7.3% in 2023 and increasing slightly by 0.8% in 2022.
  • In the Centre, real estate sales dropped 4.3% y-o-y to 172,119 units in 2024, after plummeting by 10.8% in 2023 and increasing by 3.6% in 2022.
  • In the South, real estate sales were up by 1.5% y-o-y to 166,648 units in 2024, after falling by 5.5% in 2023 and increasing by 6.1% in 2022.
  • On the Islands, real estate sales rose modestly by 2.3% y-o-y to 85,583 units in 2024, following annual increases of 0.8% in 2023 and 9.5% in 2022.

There is an increasing demand for larger homes. A recent report published by Gabetti, Professionecasa, and Grimaldi noted that demand is growing for the following types of properties:

  • Multifunctional homes, with larger dimensions and modular spaces adapted for remote working;
  • Properties with outdoor spaces, gardens, or terraces;
  • Condo units with services, such as gym, garage, and multifunctional rooms, and;
  • Bigger-sized second homes.

Italy Sales of Real Estate Units graph

New initiatives to boost the housing market

Under the 2025 Italian Budget Law, important reforms have been introduced to support first-time homebuyers and provide greater flexibility in property transactions. A key measure is the extension of the timeframe for selling a previously acquired primary residence under the "first home" tax incentive. Effective January 1, 2025, homeowners will have up to 24 months, instead of the previous 12 months, to sell their old property while still maintaining eligibility for tax benefits.

Another recent measure extended the benefit period for the 7% flat tax for pensioners who decide to retire to southern Italy from five years to nine years. The law, which has been effective since January 2019, requires the pensioner to transfer their tax residence to an Italian municipality with no more than 20,000 inhabitants located in one of the following regions: Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, or Puglia.

The new rule applies a substitute tax of 7% on pensions and all other foreign incomes. Other benefits include an exemption from payment of tax on the value of real estate located abroad (IVIE) and the tax on the value of financial assets held abroad (IVAFE).

Prior to this, other tax measures were launched by the government:

  • Abolition in 2016 of the Tassa sui Servizi Indivisibili (TASI) and Imposta Municipale Propria (IMU), which are taxes on principal homes (except luxury homes and castles).
  • 25% discount on the IMU tax for houses being lent on an "agreed rental" (canone concordato) contract for a minimum of 3 years, plus two years of automatic renewal, which complies with the local authorities' minimum and maximum rents.
  • A flat rate of 4 per thousand and a €200-worth standard deduction on IMU tax for luxury homes and castles.
  • Differentiation between mountain land and flat land, with the former getting an IMU exemption.

Italian towns selling homes for €1 continue to increase

Since early 2016, a growing number of small, rural towns in Italy have been selling abandoned, dilapidated homes for €1 to international buyers, in an effort to repopulate the towns.

"In the last 40 years, people, especially young people, left the countryside to find work in bigger cities, and those small villages like Mussomeli became abandoned all over Italy," said Italian real estate expert Stefan Neuhaus.

The Italian towns currently offering €1 homes include Ollolai (Sardinia), Sambuca (Sicily), Cantiano (Le Marche), Mussomeli (Sicily), Zungoli (Campania), Gangi (Sicily), Bivona (Sicily), Cammarata (Sicily), Borgomezzavalle (Piedmont), Nulvi (Sardinia), Fabbriche di Vergemoli (Tuscany), Oyace (Aosta Valley), Troina (Sicily), Delia (Sicily), Taranto (Apulia), and Cinquefrondi (Calabria), among others.

Since 2021, more Italian towns have started to offer houses for just over a dollar, including the Sicilian town of Castiglione di Sicilia, the Sardinian town of Bonnanaro, and the Bucolic town of Maenza. Penne, a historic town situated between the Adriatic Sea and the Gran Sasso mountains, has also been offering abandoned homes for €1 since 2022. Then, in June 2023, the municipality of Ripacandida also joined the €1 house program.

In 2024, more municipalities have joined the program, including the UNESCO World Heritage Site Sicilian city of Caltagirone, the Sicilian municipality of Troina, and the village of Cattolica Eraclea in the province of Agrigento.

Zungoli, located in the province of Avellino, has launched its fourth round of the €1 house program in 2024. The town has acquired around 100 properties, with 15 set to be available soon.

More Italian towns have become increasingly active in offering €1 homes in 2025, as local governments continue to use the program to revive their communities and attract new residents.

However, there is a catch. Prospective buyers must agree to repair and restore the property, which could cost a lot. In addition, buyers must comply with a number of conditions. First, buyers must provide an insurance deposit of between €1,000 and €5,000, depending on the town. Then, buyers need to submit their renovation plans to the town council, which must be completed within a set time frame, typically in three years. The specific process and requirements vary by municipality.

Also, even if there were interested buyers, some sales transactions did not materialize because owners of abandoned homes were impossible to track down, as they had already migrated to other places.

Because of these obstacles, the €1 scheme has been less effective than it was initially planned.

To address this, a number of Italian towns are now introducing other ways to lure new residents. The towns of Carrega Ligure in Piedmont, Latronico in Basilicata, Biccari in Puglia, and Troina in Sicily have launched websites to showcase cheap, renovated homes. They have also opened real estate agencies to support interested homebuyers in contacting old owners who have abandoned their properties.

"We attempted in 2014 to sell Stone Mountain cottages for one euro, but over the past decades, the owners had all migrated beyond the Alps, and we couldn't get hold of them. Also, the properties were divided among too many heirs, which made things way too complicated," said Carrega Ligure mayor Luca Silvestri.

"So we thought the best way was to help locals willing to offload their old homes by giving them an online platform, handled by village authorities, where they can either sell or rent the properties. Supply meets demand," Silvestri added.

There are no restrictions on foreign ownership in Italy.

'Superbonus' tax credits scaled back further amidst fiscal concerns

Italy's flagship 'Superbonus' program, launched in 2020 to encourage energy-efficient home renovations through generous tax credits, is being significantly scaled back due to its ballooning fiscal impact. Originally offering a 110% tax deduction for home improvement projects, the program led to a surge in home renovations and helped to fuel the country's economy after the effects of the Covid-19 pandemic.

However, the tax measure proved to be too costly. In April 2024, Economy Minister Giancarlo Giorgetti said that take-up of the incentives had hit €219 billion. This contributed significantly to the country's rising public debt, which now approaches 140% of GDP. Accordingly, the program also pushed up building costs and was tainted by widespread fraud.

As such, the tax credit has been reduced to 90% in 2023 and 70% in 2024. Then in 2025, the tax credit was lowered further to 65%.

To curb rising costs, the government has also issued new restrictions recently. Starting in 2025, banks and financial institutions will no longer be able to offset Superbonus credits against social security or insurance contributions. Additionally, credits acquired for less than 75% of their face value must now be used within six years and cannot be refunded, carried forward, or transferred.

While these changes have sparked political tensions within Italy's ruling coalition, the government maintains that the adjustments are necessary to balance climate goals with economic and fiscal sustainability.

Supply Highlights:

Residential construction activity continues to fall

In the first half of 2025, the total number of dwellings in authorized new residential buildings in Italy fell sharply by 12.3% to 24,731 units as compared to the same period last year, according to ISTAT figures. This followed annual declines of 0.2% in the whole year of 2024 and 7.7% in 2023, and increases of 0.1% in 2022 and 21.9% in 2021.

Similarly, the total floor area of new residential building permits in Italy dropped 7% y-o-y to 2.19 million sqm in H1 2025. This followed annual falls of 1.2% in 2024, 8.5% in 2023, 0.6% in 2022, and an increase of 20.1% in 2021.

Prior to the Covid-19 pandemic, residential construction activity in Italy experienced a significant decline, with the number of dwelling permits dropping to an average of 49,900 annually between 2013 and 2019-significantly down from 129,000 permits in 2008-2012 and 265,000 in 2004-2007.

In the post-pandemic period, the sector saw modest recovery, with average annual permits rising to 57,550 between 2021 and 2024.

Italy New Dwelling Permits graph

Rental Market:

Good rental yields

In Italy, gross rental yields, the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs, are good, averaging 7.27% in Q3 2025, not significantly different from 7.56% in Q1 2025, 7.04% in Q3 2024 and 7.67% in Q1 2024, according to the recent study conducted by the Global Property Guide.

By major cities, in Q3 2025:

  • In Rome, gross rental yields for apartments ranged from 3.22% to 8.18%, with a city average of 7.05%.
  • In Milan, apartments offer relatively lower rental yields of between 2.89% and 6.72%, with a city average of 5.32%.
  • In Florence, rental yields for apartments ranged from 5.23% to 7.7% in Q3 2025, with a city average of 6.24%.
  • In Turin, apartment rental yields are much higher than in other Italian cities, at around 3.66% to 9.98% in Q3 2025, with a city average of 7.28%.
  • In Palermo, rental yields are much higher than the national average, ranging from 5.28% to 12%, with a city average of 8.51%.
  • In Naples, apartments offer rental returns ranging from 3.65% to 12.92%, with a city average of 7.27%.
  • In Catania, rental yields are very high, ranging from 7.27% to 11.27%, with a city average of 9.19%.

Despite good rental yields, round-trip transaction costs can be high on residential property in Italy, and the country's predatory taxation system makes things worse.

Rent controls limit rental rate increases

Despite good rental yields, private renting is unattractive for Italian landlords because of rent controls and other restrictions.

Italy's rent price index:

Note: Italy's Rent Price Index, % change 1 yr
Data Source: OECD.

The standard rental contract allows free negotiation of the initial rent but commits the landlord to a four-year contract and gives the tenant the option of extending for another four years. Rents can only be increased annually by 75% of the cost-of-living index; i.e., if inflation is 2%, then you can only increase your rent by 1.5%.

Because of these restrictions on rent increases, most landlords prefer to 'frontload' long rental contracts to take into account anticipated future rent increases, inflation, and capital value appreciation. Frontloading, in turn, artificially raises rents for new contracts.

Despite this, average rents have failed to keep up with inflation since the mid-1990s. While house prices rose by an average of 6.3% from 2000 to 2008, rents rose by an average of only 2.4% over the same period.

However, in recent years, the gap has been narrowing because of the sluggish housing market, with house prices falling by a cumulative 4.9% (-24.2% inflation-adjusted) from 2011 to 2024. Over the same period, rents rose by 13.1% (but still declined by 9.7% when adjusted for inflation).

In September 2025, the actual housing rentals paid by tenants rose by a modest 3.8% as compared to the same period last year.

Italy Rent Index for Housing graph

Mortgage Market:

Housing loan interest rates continue to fall

Interest rates for both new and outstanding housing loans in Italy are generally declining again, following the European Central Bank's successive interest rate cuts amidst easing inflationary pressures.

Italy's mortgage loan interest rates:

Note: Annualised agreed rate (AAR) / Narrowly defined effective rate (NDER) (R)
Data Source: ECB.

In September 2025, the average interest rate for new housing loans in Italy stood at 3.28%, slightly down from 3.31% in the prior year and 4.21% two years ago, according to the ECB.

New housing loans by initial rate fixation (IRF):

  • The floating rate and an IRF of up to 1 year: 3.1% in September 2025, sharply down from 4.51% in the same period last year and from 4.87% two years ago.
  • IRF of 1-5 years: 3.11% in September 2025, slightly up from 3.08% a year ago but sharply down from 4.78% two years prior.
  • IRF of 5-10 years: 3.57% over the same period, down from 4% in September 2024 and from 4.53% in September 2023.
  • IRF of over 10 years: 3.31% in September 2025, slightly up from 3.22% in the previous year and from 4.02% two years ago.

Italy Interest Rates for New Housing Loans graph

On the other hand, the average interest rate for outstanding housing loans was 2.68% in September 2025, down from 3.03% in September 2024 and from 3.06% two years earlier.

Outstanding housing loans by maturity:

  • Original maturity up to 1 year: 3.59% in September 2025, far lower than the 6.6% a year earlier and from the 5.86% registered two years ago.
  • Original maturity of 1-5 years: 3.87%, significantly down from 4.59% in the previous year and from 4.99% two years ago.
  • Original maturity of over 5 years: 2.67% in September 2025, down from 3.03% a year ago and from 3.06% two years earlier.

Italy Interest Rates for Outstanding Housing Loans graph

Italy's mortgage market showing improvements

Italy's mortgage market growth is gathering pace, amidst falling interest rates. In September 2025, the total value of outstanding housing loans amounted to €436.42 billion (US$507.04 billion), up by 3% from the same period last year, based on ECB figures.

Housing loans started to decline in 2023, registering an annual fall of 0.5%, then followed by a minuscule growth of 0.4% in 2024 - a slowdown from an annual average growth of 1.4% from 2012 to 2022.

Italy's mortgage market is relatively small, with outstanding mortgages equivalent to less than 20% of GDP in 2024, less than half of the EU28's average of about 47% of GDP.

Italy Housing Loans Outstanding graph

This is largely attributable to the length and cost of the loan recovery process, which makes Italian banks very cautious.

From the time a borrower defaults, legal proceedings usually take from five to seven years. Italian house buyers are also reluctant to use mortgage facilities, despite the tax benefits, according to the Royal Institution of Chartered Surveyors (RICS). The take-up of mortgages expanded sharply when interest rates on new house purchases fell to historical lows of 2.7% in 2010, but since then, the demand for new loans for house purchases has slowed sharply, despite generally very low interest rates in the past decade.

The decline in demand became more evident in 2023, largely due to elevated interest rates that discouraged many potential homebuyers. However, the market began to recover last year as interest rates started to ease, leading to a modest improvement in buyer activity.

Historic Perspective:

Italy's long house price decline

From 2000 to H1 2008, house prices in Italy rose 85% (53% inflation-adjusted), according to Nomisma. However, house prices started to fall in H2 2008, and unlike in Europe's more economically vibrant countries, house prices have not yet recovered.

From H2 2008 to 2011, house prices fell by 1.9% (-7.8% inflation-adjusted). The price drop worsened dramatically from 2011 to 2014, with the Eurozone debt crisis impacting Italy's sluggish economy, and the property tax Tassa sui Servizi Indivisibili (TASI) hindering any recovery. During this period, house prices fell by 13.5% (-16.3% inflation-adjusted), according to the ECB figures.

From 2015 to 2019, house prices fell by an average of 0.7% (-1.25% inflation-adjusted) annually.

In the succeeding two years, house price growth gained some momentum, despite the Covid-19 pandemic. House prices rose by 1.52% (1.75% inflation-adjusted) in 2020 and by another 4% (0.44% inflation-adjusted) in 2021.

Despite the increase in nominal house prices of 2.7% in 2022, real figures declined by a huge 8.1%, amidst a surge in inflation. During 2023, house prices were up slightly by 1.8% (0.8% inflation-adjusted).

The housing market improved last year, despite a lackluster economic performance. Nationwide house prices rose by 4.5% (3.2% inflation-adjusted) during 2024.

Italy House Price Indices graph

More Italians now live in their own homes than in the 1980s

During 2024, around 75.9% of the country's total households are owner-occupiers, an increase from 75.2% in the preceding year, 72.4% in 2020, and from 59% of total households in 1980, according to Eurostat figures.

Italy Homeownership Rate graph

Sardinia and Sicily have the most owner-occupiers, at around 84.1%. The South and North-West regions have relatively lower rates of owner-occupiers at 78.7% and 77.7%, respectively.

Why the rapid increase in home ownership?

  • Living standards have risen, despite relatively slow economic growth.
  • There are tax breaks for ownership, mortgage relief, and low-value assessments when calculating imputed income tax and capital gains taxes.
  • The new housing supply is almost exclusively destined for homeownership.
  • The Fair Rent Act of 1978 established a common four-year lease and continued rent controls, making being a landlord unattractive.

Socio-Economic Context:

Sluggish economic performance, low inflation

Italy has never fully recovered from the 2008-09 global crisis, and the Covid-19 pandemic has added another blow to the country's still weak economy. Before the financial crisis, the Italian economy was growing sluggishly, with average GDP growth of 1.2% from 2001 to 2007. It has been a miserable decade since then. The economy contracted by 1% in 2008 and by another 5.3% in 2009.

The country went back to 1.7% growth in 2010 and 0.7% in 2011, but contracted by 3% in 2012 and 1.8% in 2013.

Italy's economy stabilized in 2014, then grew slightly by 0.8% in 2015, 1.3% in 2016, 1.7% in 2017, and 0.9% in 2018. Italy's economy expanded by a minuscule 0.5% in 2019, amidst trade tensions and a weaker investment outlook.

The economy suffered a huge contraction of 8.9% in 2020, during the onset of the Covid-19 pandemic. It was its worst showing in recent history. Then the economy grew by 8.9% in 2021, amidst the easing of pandemic-related restrictions and the low base effects. In 2022, the economy grew by a more modest 4.8%, as the surge in inflation adversely affected consumers' purchasing power.

The Italian economy had been sluggish in the past two years, amidst a decline in fixed investment and international trade. During 2024, the eurozone's third-largest economy grew by a measly 0.7% from a year earlier, at par with the preceding year's expansion.

Then in the third quarter of 2025, the economy grew by another meager 0.4% from the same period last year, following expansions of 0.4% in Q2 and 0.7% in Q1, according to figures from ISTAT. Quarter-on-quarter, real GDP registered zero growth in Q3 2025.

Italy GDP Growth and Inflation graph

"The quarter-on-quarter change of GDP was the result of an increase of value added in agriculture, forestry and fishing, a slight decrease in industry, and a stationarity in services," said ISTAT. "From the demand side, the negative contribution of the domestic component (gross of change in inventories) was substantially compensated by the positive contribution of net exports."

Italy's economic outlook remains highly uncertain, weighed down by ongoing geopolitical tensions, potential US trade tariffs, and persistent challenges in effectively utilizing its EU pandemic recovery funds.

"Heightened uncertainty has dampened the near-term economic outlook, while subdued productivity growth and rapid population aging are expected to continue weighing on growth prospects. Timely and effective implementation of the National Recovery and Resilience Plan (NRRP) projects is expected to support near-term economic activity, while trade tensions are likely to provide a notable drag," said the International Monetary Fund (IMF) in its Staff Concluding Statement of the 2025 Article IV Mission.

With this, the European Commission projects the Italian economy to grow by just 0.7% this year and 0.9% in 2026. The IMF, on the other hand, released a more conservative growth forecast for Italy of about 0.5% and 0.8% in the next two years.

ISTAT's economic outlook aligns closely with these projections, anticipating growth of 0.6% this year and a further 0.8% in 2026.

Inflation pressures remain manageable. In October 2025, nationwide inflation stood at 1.2%, down from 1.6% in the previous month but higher than the 0.9% recorded in the same period last year, based on figures released by ISTAT.

From an annual average of just 1.2% in 2011-2021, inflation surged to 8.7% in 2022 and remained high at 5.9% in 2023. Last year, inflation eased to an average of 1.3%.

"After the rise in prices between late 2024 and the early months of 2025, a more moderate inflation trend is expected over the year, supported by falling energy prices and weakening demand prospects," said ISTAT.

Italy Unemployment Rate graph

The labor market remains stable. Overall, the unemployment rate was 6.1% in September 2025, slightly down from 6% in the previous month but unchanged from the same period last year. Unemployment averaged 10% from 2010 to 2024.

Budget deficit continues to fall but public debt increasing again

During 2024, Italy's government recorded a budget deficit equivalent to around 3.4% of GDP, sharply down from shortfalls of 7.2% of GDP in 2023, 8.1% in 2022, 8.9% in 2021, and 9.4% in 2020. Yet it remains above the annual budget deficit of just 1.5% to 3% from 2012 to 2019.

Italy Governmental Budget Balance graph

"The general government deficit declined by 3.8 pps. to 3.4% of GDP in 2024, as a result of the phase-out of sizeable tax credits for housing renovations and support measures related to the energy crisis, together with buoyant revenues, particularly from taxes on personal income and financial assets," said the European Commission.

"Public investment surged, driven also by RRF-financed projects. Primary current expenditure increased slightly, driven by the indexation of pensions to the high 2023 inflation and higher public-sector wages. The primary balance turned positive, from -3.6% in 2023 to 0.4% in 2024. At the same time, debt servicing costs increased by 0.2 pps., reaching 3.9% of GDP," added the European Commission.

The general government net borrowing was €75.5 billion (US$86.2 billion) last year.

Italy, currently under the European Union's excessive deficit proceedings, has laid out a fiscal roadmap aimed at reducing its budget deficit to below 3% of GDP by 2026, in compliance with the EU's fiscal guidelines. For 2025, the government aims to reduce the shortfall to about 3.3% of GDP.

Despite progress in narrowing the deficit, public debt continues to edge upward. According to ISTAT, the country's public debt increased to around 135.3% of GDP in 2024, up from 134.6% the previous year. Yet it remains lower than the public debt, equivalent to 138.1% of GDP in 2022, 147.1% in 2021, and 154.9% in 2020.

The public debt is projected to increase further to approximately 136.7% of GDP this year and to 138.2% of GDP in 2026. The projected rise in public debt is largely attributed to stock-flow adjustments stemming from the delayed cash impact of housing renovation tax credits, which continue to affect deficits from previous years. Additionally, the debt trajectory is further pressured by a less favorable differential between interest rates and economic growth.

Italy Gross Government Debt graph

Sources:

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