Italy

Italy's Residential Property Market Analysis 2025

Lalaine C. Delmendo

Italy's housing market is showing signs of improvement, supported by rising demand and a shortage of supply due to weak residential construction.

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 4.51% in Q4 2024 from a year earlier, an acceleration from y-o-y increases of 3.77% in Q3, 2.94% in Q2, and 1.59% in Q1. It was the biggest growth recorded since Q2 2022. However, when adjusted for inflation, prices were up by a more modest 3.21% over the same period.

Quarter-on-quarter, nationwide house prices increased slightly by 0.71% (also up by 0.71% when adjusted for inflation) in Q4 2024.

Italy's house price annual change:

By submarket:

  • New house prices rose strongly by 9.35% (8% inflation-adjusted) y-o-y in Q4 2024. It was the biggest growth in the past two and a half years. Quarter-on-quarter, prices increased by 3.99% (3.99% inflation-adjusted).
  • Existing house prices were up by a modest 3.43% (2.15% inflation-adjusted) in Q4 2024 from a year earlier but down slightly by 0.09% (0.09% inflation-adjusted) from the previous quarter.

"The upward pressures on prices were mainly driven by the recovery in demand, with assessments on the number of potential buyers improving significantly compared with the previous year, while supply remained weak," said Banca D'Italia's Q4 2024 Housing Market Survey. "Improved access to credit contributed to sustaining demand: the share of agents citing difficulties in obtaining mortgage loans as a key reason for cancelled listings fell for the fifth consecutive quarter."

According to Idealista's data, which provides monthly estimates based on live residential property listings across Italy, average house prices increased by 2.2% over the past year. However, this upward trend reversed in the first quarter of 2025, with prices falling by 2.6% y-o-y to an average of €1,801 (US$2,054) per square meter (sqm). When adjusted for inflation, house prices were down by 4.6% over the same period.

Quarter-on-quarter, nationwide house prices fell by 4.2% (-5.3% inflation-adjusted) in Q1 2025.

In Rome, Italy's capital and largest city, home prices stood at an average of €3,124 (US$3,549) per sqm in Q1 2025, up by 1.1% from the previous quarter and higher by 3.4% from a year earlier.

Milan, Bolzano, and Venice have the most expensive housing in the country, with average house prices currently at €4,986 (US$5,664), €4,598 (US$5,223), and €4,562 (US$5,182) per sqm, respectively.

Demand is now stabilizing. In the first half of 2024 (the latest figures available in ISTAT), sales of real estate units and other kinds of property transactions reached 455,798, up slightly by 0.3% from the same period in the preceding year. This followed an annual decline of 6.6% in the full year of 2023.

Of the total sales, transfers of residential properties accounted for about 93.5% share.

Yet residential construction activity remains subdued. During 2024, authorized new residential buildings fell slightly by 0.2% to 55,164 units as compared to the previous year, following an annual decline of 7.7% in 2023, and increases of 0.1% in 2022 and 21.9% in 2021, according to ISTAT figures. On the other hand, the floor area of new residential building permits in Italy increased by a meager 0.6% y-o-y to 4.73 million sqm in 2024.

This is on the back of continued weakness in the country's overall economic activity. During 2024, the eurozone's third-largest economy grew by a measly 0.5% from a year earlier, at par with the 0.7% expansion recorded in the preceding year.

"Economic activity in Italy remained weak in the fourth quarter of 2024, partly affected, as in the rest of the euro area, by the persistent sluggishness in manufacturing and the slowdown in services. In construction, the support provided by the works under the National Recovery and Resilience Plan was in contrast with the contraction in activity in the housing sector. Domestic demand was likely held back by the slowdown in household spending and by still unfavourable investment conditions," said Banca D'Italia in its Economic Bulletin No. 1 - 2025.

Italy's economic outlook remains uncertain, weighed down by ongoing geopolitical tensions, potential US trade tariffs, and persistent challenges in effectively utilizing its EU pandemic recovery funds. The European Commission projects the Italian economy to grow by just 1% this year and 1.2% in 2026. The International Monetary Fund (IMF), on the other hand, released a more conservative growth forecast for Italy of about 0.8% and 0.7% in the next two years.

Italy's GDP per capita, a key economic indicator for the standard of living of Italians, stood at around US$40,300 in 2024, up by nearly 12% from a decade ago, based on figures released by the International Monetary Fund (IMF).

Italy GDP Per Capita (USD) 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 €4,986 (US$5,664) per sqm in Q1 2025, nearly unchanged from a year earlier, according to national listing portal Idealista. Quarter-on-quarter, prices were down by 1.6% during the latest quarter.

In Venice, known as the "City of Canals" and one of Italy's most picturesque cities, the average house price rose by a modest 2.1% y-o-y to €4,562 (US$5,182) per sqm in Q1 2025. Quarterly, prices fell slightly by 0.2% over the same period.

In Rome, Italy's capital and largest city, home prices stood at an average of €3,124 (US$3,549) per sqm in Q1 2025, up by 1.1% from the previous quarter and higher by 3.4% from a year earlier.

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 €4,598 (US$5,223) per sqm in Q1 2025. Prices were down by 1.8% compared to the previous quarter but up by 2.7% from a year earlier.
  • In Turin, the average price of homes increased by 1% in Q1 2025 from a year earlier, to €1,871 (US$2,125) per sqm in Q1 2025. Though quarterly, prices dropped 1.3%.
  • In Bologna, home prices averaged €3,450 (US$3,919) per sqm in Q1 2025, lower by 3.8% from the previous quarter and slightly down by 0.1% from a year earlier.
  • In Florence, house prices rose by 6.1% y-o-y to an average of €4,331 (US$4,920) per sqm in Q1 2025. Quarterly, prices were up by 2.7%.
  • In Naples, Italy's third biggest city, home prices fell by 3.9% y-o-y to an average of €2,712 (US$3,081) per sqm in Q1 2025. Quarter-on-quarter, prices dropped 3.6%.
  • In Palermo, house prices averaged €1,341 (US$1,523) per sqm in Q1 2025 - down by 5.4% q-o-q and by 2.2% y-o-y.
  • In Genoa, the average price of homes fell by 2.7% y-o-y to €1,384 (US$1,572) per sqm in Q1 2025. Quarterly, prices were down by 4.1%.
  • In Catania, house prices were up by 2.1% y-o-y to €1,240 (US$1,409) per sqm in Q1 2025. Quarter-on-quarter, prices rose by 2%.

Demand Highlights:

Home sales stabilizing; demand shifting to larger homes

Real estate activity is now stabilizing. In the first half of 2024 (the latest figures available in ISTAT), sales of real estate units and other kinds of property transactions reached 455,798, up slightly by 0.3% from the same period in the preceding year. Of which, transfers of residential properties accounted for about 93.5% share.

This 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 4.1% to 155,894 units in H1 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 fell by 2.5% y-o-y to 93,669 units in H1 2024, after declining by 7.3% in 2023 and increasing slightly by 0.8% in 2022.
  • In the Centre, real estate sales dropped 2.9% y-o-y to 85,291 units in H1 2024, after plummeting by 10.8% in 2023 and increasing by 3.6% in 2022.
  • On the Islands, real estate sales rose modestly by 2.4% y-o-y to 41,186 units in H1 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 home 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.

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 (US$238.1 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 stained by widespread fraud.

As such, the tax credit has been reduced to 90% in 2023 and 70% in 2024, and is set to drop further to 65% this year.

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 remains weak

During 2024, authorized new residential buildings fell slightly by 0.2% to 55,164 units as compared to the previous year, following an annual decline of 7.7% in 2023, and increases of 0.1% in 2022 and 21.9% in 2021, according to ISTAT figures.

On the other hand, the floor area of new residential building permits in Italy increased by a meager 0.6% y-o-y to 4.73 million sqm in 2024. This followed annual falls of 8.4% in 2023 and 0.6% in 2022.

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 7.56% in Q1 2025, up from 7.04% in Q3 2024 but slightly down from 7.67% in Q1 2024, according to the recent study conducted by the Global Property Guide.

By major cities, in Q1 2025:

  • In Rome, gross rental yields for apartments ranged from 4.74% to 9.14%, with a city average of 7.55%.
  • In Milan, apartments offer relatively lower rental yields of between 3.22% and 6.92%, with a city average of 5.44%.
  • In Florence, rental yields for apartments ranged from 6.25% to 7.84% in Q1 2025, with a city average of 7.35%.
  • In Turin, apartment rental yields are much higher than the national average, at around 4.57% to 11.46% in Q1 2025, with a city average of 8.34%.
  • In Palermo, rental yields are also high, ranging from 5.3% to 10.8%, with a city average of 8.29%.
  • In Naples, apartments offer rental returns ranging from 4.14% to 11.3%, with a city average of 7.41%.
  • In Catania, rental yields are very high, ranging from 6.86% to 10.08%, with a city average of 8.55%.

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:

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 February 2025, the actual housing rentals paid by tenants rose by a modest 3.4% 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:

In February 2025, the average interest rate for new housing loans in Italy stood at 3.18%, down from 3.89% in the prior year and 3.76% 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: 3.82% in February 2025, down from 4.97% in the same period last year, but still slightly higher than the 3.66% two years ago.
  • IRF of 1-5 years: 3.08% in February 2025, down from 4.37% a year ago and from 3.83% two years prior.
  • IRF of 5-10 years: 3.62% over the same period, down from 4.31% in February 2024 and from 3.9% in February 2023.
  • IRF of over 10 years: 3.12% in February 2025, down from 3.64% in the previous year and from 3.84% two years ago.

Italy Interest Rates for New Housing Loans graph

On the other hand, the average interest rate for outstanding housing loans was 2.82% in February 2025, down from 3.13% in February 2024 but still higher than the 2.58% two years earlier.

Outstanding housing loans by maturity:

  • Original maturity up to 1 year: 6.23% in February 2025, lower than the 6.51% a year earlier but still far higher than the 5% registered two years ago.
  • Original maturity of 1-5 years: 4.17%, significantly down from 4.87% in the previous year and a bit lower than the 4.18% two years ago.
  • Original maturity of over 5 years: 2.82% in February 2025, down from 3.13% a year ago but still higher than the 2.57% two years earlier.

Italy Interest Rates for Outstanding Housing Loans graph

Italy's mortgage market remains sluggish

Italy's mortgage market growth remains sluggish, despite falling interest rates. In February 2025, the total value of outstanding housing loans amounted to €428 billion (US$486.2 billion), up by 1% 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.

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.

Italy Homeownership Rate graph

Socio-Economic Context:

Sluggish economic performance, rising inflationary pressures

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%, 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 0.5% from a year earlier, at par with the 0.7% expansion recorded in the preceding year.

Italy GDP Growth and Inflation graph

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

"Intensification of regional conflicts could generate new supply shocks and commodity price volatility that the limited fiscal space may be unable to accommodate. Spillovers from sharp slowdowns in major trading partners, deepening geoeconomic fragmentation, and extreme climate events could also impinge on Italy's GDP growth," said the International Monetary Fund (IMF). "Significantly higher-than-expected interest rates could weaken business confidence and lead to a repricing of Italian government bonds that could deteriorate public debt dynamics, reviving concerns about sovereign-bank-corporate linkages. Domestic factors could also weaken growth, including an inability to complete NRRP spending and effectively implement reforms, while still large fiscal deficits could erode investor confidence, further weakening public finances."

The European Commission projects the Italian economy to grow by just 1% this year and 1.2% in 2026. The IMF, on the other hand, released a more conservative growth forecast for Italy of about 0.8% and 0.7% in the next two years.

Inflationary pressures are rising again. Nationwide inflation accelerated to 2% in March 2025, up from 1.6% in the previous month and 1.2% in the same period last year, based on figures from ISTAT. It was the highest level recorded since October 2023. 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%.

Labor market conditions continue to improve. Overall, the unemployment rate fell to 5.9% in February 2025, down from 6.2% in the previous month and 7.2% in the same period last year. This marks the lowest level in nearly 18 years. Unemployment averaged 10% from 2010 to 2024.

Italy Unemployment Rate graph

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.

"This large decline is driven by the phase-out of measures to mitigate the impact of high energy prices (1% of GDP) and of tax credits for housing renovations (around 3½% of GDP)," said the European Commission. "Despite weak nominal GDP growth, buoyant tax revenue, particularly from personal income tax and withholding taxes on financial assets, also contributes to the deficit reduction in 2024. These deficit-reducing effects are only partly counterbalanced by the cuts to the labour tax wedge, the indexation of pensions to the high 2023 inflation, and public sector wage increases linked to the renewal of contracts for the 2022-24 period."

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.

Italy Budget Balance graph

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 138.2% of GDP this year and to 139.3% 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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More data and information on Italy

Rental Yields in Italy
House Price Index in Italy
How to Buy Property in Italy
SQM Prices in Italy Compared to Europe