Economy - overview: Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private companies, and a less-developed, highly subsidized, agricultural south, with high unemployment. The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises, many of them family owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 17% of GDP. These activities are most common within the agriculture, construction, and service sectors. Italy is the third-largest economy in the euro-zone, but its exceptionally high public debt and structural impediments to growth have rendered it vulnerable to scrutiny by financial markets. Public debt has increased steadily since 2007, topping 126% of GDP in 2012, and investor concerns about the broader euro-zone crisis at times have caused borrowing costs on sovereign government debt to rise to euro-era records. During the second half of 2011 the government passed a series of three austerity packages to balance its budget and decrease its public debt. These measures included a hike in the value-added tax, pension reforms, and cuts to public administration. The government also faces pressure from investors and European partners to sustain its recent efforts to address Italy's long-standing structural impediments to growth, such as an inflexible labor market and widespread tax evasion. In 2012 economic growth and labor market conditions deteriorated, with growth at -2.3% and unemployment rising to nearly 11%. Although the government has undertaken several economic reform iniatiatives, in the longer-term Italy's low fertility rate, productivity, and foreign investment will increasingly strain its economy. Italy's GDP is now 7% below its 2007 pre-crisis level.
Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.
Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of February 21, 2013
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