Following a year of stagnation, Italy’s economy still struggles, narrowly avoiding recession in the third quarter. The eurozone’s third-largest economy saw its gross domestic product (GDP) remain unchanged compared with the previous quarter, while expanding by 0.4% year over year, according to Trading Economics. In the three months leading up to September, Italy posted a 0.1% contraction from the second quarter, contradicting expectations of a 0.1% rebound.

Italy’s annual inflation slowed to 1.2% in October, down from 1.6% in September, the lowest level for the year, per Trading Economics. The decrease is attributed to a drop in regulated energy prices, as well as softer increases in unprocessed food, transport services and processed food. These declines were softened somewhat by accelerated price growth in recreational and personal care services, and a modest decline in unregulated energy.  

Italy’s core inflation eased to 1.9% from 2%, while goods inflation slowed to 0.2% from 0.6% and services inflation remained stable at 2.6%. Additionally, prices declined 0.3% month over month, following a 0.2% drop in September. 

Despite recent contractions, Italy’s labor market remains resilient with record-high employment. However, it continues to face challenges like stagnant wages, regional disparities and high youth unemployment. In August, the southern European country’s unemployment rate increased by 6%, up from a downwardly revised rate of 5.9% in July, per Trading Economics.  

“Meanwhile, the employment rate fell to 62.6% from 62.8%, with the number of employed persons declining by 57 thousand to 24.17 million,” reads the Trading Economics report. “The labor force participation rate inched down to 66.7% from 66.8%. The youth unemployment rate, measuring job-seekers between 15 and 24 years old, increased to 19.3% from 18.6%.” 

As of October, Italy is projected to have an annualized growth rate of 0.5% in, mirroring last year’s expansion rate and just under the latest projections by the Bank of Italy, according to Trading Economics.  

In 2026, the Italian deficit is expected to contract slightly, to 2.8% of GDP. Primary expenditure is projected to rise slowly, with planned savings on both current and capital spending, per the European Commission. Spending growth is primarily influenced by social transfers (including the partial and temporary freeze of the pension age increase), healthcare spending, higher national contributions to the European Union budget and a further rise in public investment, also driven by RRF-financed projects.  

“Tax revenues are set to increase, since a rise in taxes for financial and insurance companies, the earlier closure of the petrol-diesel tax differential and measures to improve tax collection fully compensate the cut to the labor tax wedge for middle income earners, the introduction of lower flat taxation on contract renewals, productivity bonuses and overtime and the introduction of a simplified debt settlement for tax collection,” reads the European Commission report. 

According to FCIB’s October Credit and Collections Survey, Italian customers paid an average of 10 days beyond terms, consistent with January’s survey results. Customer payment behavior has shifted notably since the start of the year: 13% reported an increase in payment delays, a 20-point drop from the previous report, while the share reporting no change rose 28 points to 50%. In October, 12% of respondents noted a decrease in payment delays, compared with none in the previous survey. 

Earlier in the year, the most common causes of payment delays in Italy were billing disputes (80%) and customer payment policies (40%). More recent results indicate that cultural norms and customs (67%), cash flow issues (33%) and customer payment policies (33%) are now major contributors. 

“At this time, it will be best to start on payment in advance,” said one respondent. “Know your true legal customer before conducting business,” said another.