At the top of the ranking of the major European economies, Italy’s public debt is estimated to be 139.8% of GDP in 2023, much higher than that of France (109.6%), Spain (107.5%) and Germany (64.8%), rising to 140.6% in 2024 and 140.9% in 2025. The largest holders of Italian public debt will remain financial institutions and the rest of the world, but the share held by ‘households and non-profit institutions’ will continue to increase.
This is what emerges from the report ‘Public Debt in Italy: Analysis and Prospects‘ by Rome Business School (RBS), edited by Francesco Baldi, Lecturer of the International Master in Finance of Rome Business School; Massimiliano Parco, Economist, Centro Europa Ricerche and Valerio Mancini, Director of the Rome Business School’s Disclosure Research Centre.
According to the Maastricht criteria, the ratio of gross public debt to GDP must not exceed 60 per cent or at least show signs of reduction, but the European Commission forecast estimates the average in the euro area at 90.4 per cent at the end of 2023. From 97.2 in 2020 to 90.9 in 2022, the European Commission found a reduction in the euro area’s deficit/GDP ratio, forecasting a further reduction to -2.1% in 2025, indicating Italy’s at -2.5% as the third largest reduction among the main countries in the area, after France (-3.6%) and Spain (-3.3).
According to data compiled by Massimiliano Parco, economist at Centro Europa Ricerche, in mid-November 2023 the price of raw materials increased by 47.7% compared to 2019, before the pandemic shock. The increase in the price of energy goods (+55.4% compared to 2019) and that of food and beverages (+53.6%) remained more robust, while industrial inputs reported increases of 23.6%. Francesco Baldi, notes that ‘the price increase recorded by raw materials and absorbed by businesses was fully reflected in consumer prices’, thus leading to an increase in the inflation rate globally. In the Eurozone, with the exception of France, the major economies (Germany, Italy and Spain) recorded inflation rates above 10 per cent in the period June 2022-March 2023. In November 2023, the inflation rate reached 3.9 % in France, 3.3 % in Spain and a reduced 0.6 % in Italy.
For the Standard & Poor’s Markit PMI index (monthly indicator of confidence in the real economic conditions of a country, where a value above 50 is a sign of an expanding economy and a lower value signals a contraction in the country’s production), in October 2023, among the main economies of the Eurozone, only the Spanish economy (Markit: 50) appeared to be in a phase of stasis, unlike the other countries, which have been showing contractions in the cycle since June 2023. The most intense downturn is currently seen in France, with a Markit value of 44.6 points, slightly lower than in Germany (45.9 points) and Italy (47).
The European Commission’s GDP forecasts also show an almost uniform slowdown among the main Eurozone economies: for the two-year period 2024-2025, production in value in the Eurozone is expected to increase by +1.2% and +1.6% respectively, similar to what is expected to happen in France (+1.2% and +1.4%). The estimates for Italy (+0.9% and +1.2%) are almost in line with those for Germany (+0.8% and +1.2%). Spain’s GDP estimates, on the other hand, are not expected to fall below 1.5%: +1.7% in 2024, +2% in 2025.
Processing data from the Bank of Italy, the authors observed a fair degree of heterogeneity among Italian regional administrations in 2022. Latium is identified as Italy’s black jersey, with a gross public debt of EUR 28.3 billion (24.3% of the public debt of regional administrations). High debt levels are also recorded in Campania with 15.6 billion euro (13.4% of the aggregate of the regions) and in Sicily, Lombardy and Piedmont where the debt level is just over 10 billion. On the contrary, the regions characterised by low debt levels are Valle d’Aosta, Molise and Basilicata with a total gross public debt of less than EUR 1 billion.
This pattern is the result of an uneven dynamic over the last 25 years. From 1998 to 2022, several regions recorded progressive indebtedness. Of particular note is the cumulative increase recorded by Campania (+347%, between 1998 and 2022), Lazio (+270%), Calabria (+241%) and Sicily (+185%). In contrast, regions such as Friuli-Venezia Giulia (-16%), Emilia-Romagna (-19%) and Sardinia (-39%) have recorded double-digit debt reductions, as a consequence of a consolidation of regional public accounts.
“In a scenario of higher indebtedness at regional level, the consolidation of public accounts by FVG, Emilia-Romagna and Sardinia stands out, by virtue of spending choices in favour of greater debt sustainability,” says Massimiliano Parco.
Bank of Italy data show a clear concentration of medium- and long-term debt securities in August 2023, at 79.3%. Compared to January 2002, the increase in medium/long-term securities was over 7 percentage points (72.4% in January 2002). By contrast, the exposure on short-term securities decreased from 8.5% in January 2002 to 4.3% in August 2023. Currency and bank deposits accounted for 7% in August 2023, down 6.5 p.p. from January 2002. In contrast, the weight of loans from banks and funds increased from 4.6% to 5.2%.
“Over the past 20 years, the Italian Treasury’s strategy has been to shift debt issuance from short to medium-long term, increasing its average residual life by two years, now 7.7 years,” says Francesco Baldi.
The forecast in the 2023 Economic and Financial Document Update (NADEF) estimates a return to a primary surplus in 2025, albeit limited (+0.7 % primary surplus as % of GDP). This should favour a slowdown in the growth of the debt-to-GDP ratio. The residual component related to adjustments between stocks and flows is estimated to contribute unfavourably for the three-year period 2023-2025.
“Economic growth, accompanied by controlled inflation, is the best means to counter high debt, provided that this growth does not lead to an uncontrolled increase in public spending, generating highly passive budgets,” says Valerio Mancini. Possible solutions to this challenge include several strategies, which must necessarily be based on two pillars: structural reforms, to reduce public spending and control the deficit; and inflation management.
In the coming years, net borrowing and gradual economic growth are expected to increase, accompanied by deficit and public debt reduction targets, and the North/South disparity, with northern regions having a lower debt/GDP than the Mezzogiorno, will experience further tensions.