The economy of Italy has changed dramatically since the end of World War II. From an agriculturally based economy, it has developed into an industrial country ranked by both the World Bank and the International Monetary Fund as the world's seventh largest economy in USD exchange-rate terms and tenth largest in terms of purchasing power parity (PPP) by World Bank, IMF and the CIA World Factbook. More recently, Italy has faced sluggish economic growth and reduced international competitiveness. However, statistics as of 2007 show signs of acceleration in GDP growth, estimated at 2% in 2006, a record high since 2000.
The country belongs to the Group of eight (G8) industrialized nations; it is a member of the European Union and the OECD.
Italy's economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. The country has been less successful in terms of developing world class multinational corporations. In addition, the small and medium-sized firms typically manufacture products that are technologically moderately advanced and therefore increasingly face crushing international competition. However, Italy's Institute for Foreign Trade, has initiated the "Machines Italia" program, in conjunction with leading Italian machinery manufacturers' associations to promote Italian manufacturers' recognized attributes for creativity, flexibility and innovation in bringing customized solutions to their clients. Currently the Machines Italia program operates in various foreign markets as the United States, Canada and Mexico.
Since 1991 on the subject of economic policy, Italy has focused primarily on reducing government budget deficits and reining in the national debt. Successive Italian governments have adopted annual austerity budgets with cutbacks in spending, as well as new revenue raising measures. Italy has enjoyed a primary budget surplus, net of interest payments, for the last 7 years. The deficit in public administration declined to 1.4% of GDP in 2000, down from 7% in 1995. Italy joined the Economic and Monetary Union in May 1998. The national debt, which stood at roughly 124% of GDP in 1995, declined steadily until about 2002, but is rising again because of slow growth. The deficit-to-GDP ratio is likely going to be higher than the EU limit of 3.0% in 2005, and estimates of up to 5.1% have appeared.
Italy entered an economic crisis in between 1999 and 2000, with GDP growth at about zero, although GDP has started to grow again as of 2005. Previously, Italy's economy had accelerated from 0.7% growth in 1996 to 1.4% in 1999 and continued to rise to about 2.90% in 2000, which was closer to the EU projected growth rate of 3.10%. Domestic demand and exports were the dominant factors in GDP growth, but it nevertheless remains one of the lowest among industrialised countries. Since 2002, growth has gradually slowed, reaching recession conditions. The opposition blamed Silvio Berlusconi's government for incompetence, especially the minister of economy Giulio Tremonti. A report of the Economist, entitled Addio, dolce vita ("Farewell, sweet life") parallels current status of Italian economy to that of the Republic of Venice in 1797, a country with "many attractions" but living "a slow, long decline". Italy was called "the real sick man of Europe".
Industrial sectors have long been concentrated in northern areas of Piemonte, Lombardia, and Veneto. The region supplies easy access to the rest of Europe, hydroelectricity from the Alps, and workable, flat land. The FIAT factory, for example, is located in Turin. Most Italian industries, often of small size, are located in the "industrial triangle" (Milano, Torino, Genova) and in some centres of Northeast and Emilia Romagna. Italian wines are probably the Tuscan Chianti and Piedmontese Pinot Grigio. Other famous wines are Barbaresco, Barolo and Barbera (Piedmont), Brunello di Montalcino (Tuscany), Montepulciano d'Abruzzo (Abruzzo) and Nero d'Avola (Sicily). Quality goods in which Italy specialises are often DOC or 'of controlled origin'. This DOC certificate, which is attributed by the European Union, ensures that the origins and work that goes into a product are recognised. This certification is considered important by producers and consumers alike, in order to avoid confusion with low-quality mass-produced ersatz products, such as Cambozola, a German copy of Gorgonzola.
Italy is known also for its fashion houses, such Versace, Valentino, Fendi, Gucci, Prada, Roberto Cavalli, Sergio Rossi, Dolce & Gabbana, Benetton, and Armani.
FIAT is an automaker specializing in utilitarian and luxury vehicles, with the brands FIAT, Lancia, Alfa Romeo, Ferrari and Maserati. The Piemontese group has struggled in recent times due to high input costs and declining market share, although a recent revival has seen a return to profit. Manufacturers like Piaggio and Ducati produce motorcycles.
Italy has a substantial home appliance construction industry, especially in Lombardy (Candy), Marche (Merloni) and Northeastern regions.
A quarterly report prepared by the Economist Intelligence Unit on behalf of Barclays Wealth in 2007 estimated that there were 2,800,000 dollar millionaires in Italy.
The Time magazine reported in early 2008 that the mafia's purchasing power was estimated at almost $125 billion (or 15 cents per minute)
Italy's major exports are precision machinery, motor vehicles (utilitaries, luxury vehicles, motorcycles, scooters), chemicals and electric goods, but the country's more famous exports are in the fields of food and clothing.
Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 59% of its total trade. Italy's largest EU trade partners, in order of market share, are Germany (19%), France (13%), and the Netherlands (6%).