Italy's Demographics and Economic Prospects

By Sara Rossi
MILAN (Reuters) – Italy's demographics are the worst in Europe regarding economic growth potential from 2023 to 2040, according to Scope Ratings. A rapidly ageing population threatens the country’s strained public finances.

Last year, births in Italy fell for the 15th consecutive year, reaching a record low of 379,000, the lowest number since the country's unification in 1861, as per official data.

Italy's working-age population is set to decline by almost 19% between 2023 and 2040, the sharpest reduction in Europe, exceeding declines in Germany and Spain (both at 14%) and France (2%). This shrinking workforce underscores the importance of labor market reforms for Italy's long-term economic prospects.

The current employment rate in Italy is the lowest in the 27-nation EU, with only 66.3% of Italians aged 20-64 employed, compared to an EU average of 75.3% (Eurostat data). The situation is particularly challenging for women balancing motherhood and work.

The Bank of Italy emphasizes the necessity of increasing women's participation in the labor force to support long-term economic growth and ensure the sustainability of the country's nearly 3 trillion euro ($3.29 trillion) debt.

Italy's economy has struggled since the euro's introduction in 1999. A recovery following the Covid-19 pandemic was driven by costly state incentives for energy efficiency improvements but is now waning.

Recently, national statistics institute ISTAT lowered the 2023 growth rate estimate to 0.7% from 0.9%. Economy Minister Giancarlo Giorgetti noted that this year’s goal of 1% might be unattainable, reflecting sentiments from the Bank of Italy and the parliamentary budget watchdog.

Despite these challenges, Scope Ratings projects Italy's growth at around 1% this year and next, aligning with the government’s medium-term structural budget plan, which is under parliamentary review and will be scrutinized by ratings agencies including S&P Global, DBRS, Fitch, Moody's, and Scope.

($1 = 0.9116 euros)