​The 2023 European Commission Country Report on Italy provides a comprehensive analysis of the nation's economic performance, fiscal health, and structural challenges within the context of the European Semester framework. Following a robust recovery from the COVID-19 pandemic, Italy's economic momentum was tempered by the repercussions of Russia's invasion of Ukraine. While real GDP had rebounded to pre-pandemic levels by 2022, growth prospects were hindered by disruptions in trade flows and surging commodity prices. Although direct trade with Russia and Ukraine constitutes a minor portion of Italy's export markets, the broader impact on European supply chains and energy costs significantly affected the Italian economy.​

In response to energy supply concerns, Italy swiftly diversified its energy sources, reducing reliance on Russian gas from 43% of imports in 2021 to lower levels by increasing imports from alternative suppliers, boosting renewable energy production, and promoting energy conservation. Despite these efforts, elevated international energy prices adversely impacted the current account balance, which turned slightly negative in 2022. Inflationary pressures, primarily driven by energy and food prices, disproportionately affected low-income households due to their higher expenditure shares on these essentials. Government interventions mitigated some of the retail energy price increases, and a decline in energy prices by late 2022 suggested a gradual easing of inflation, with projections indicating a decrease to 2.9% by 2024.​

Financial conditions tightened as monetary policy normalized, leading to increased borrowing costs for households and firms. Despite this, corporate debt repayment capacity remained robust, supported by improved profitability and healthier balance sheets. However, sustained higher financing costs could constrain investment decisions, particularly for projects with lower risk-adjusted returns. Household debt servicing capacity also faced challenges due to eroded real disposable incomes.​

Italy's public finances have come under strain from extensive fiscal measures implemented to support the economy during the pandemic and the energy crisis. The general government deficit decreased from 9.0% of GDP in 2021 to 8.0% in 2022, while the debt-to-GDP ratio declined from 149.9% to 144.4% over the same period. Nevertheless, these figures remain elevated, and the European Commission's assessment under Article 126(3) of the Treaty on the Functioning of the European Union concluded that Italy did not meet the deficit and debt criteria, signaling potential future corrective actions.​

The implementation of Italy's National Recovery and Resilience Plan (NRRP) is pivotal in addressing long-standing structural weaknesses, including low productivity growth and high public debt. While progress has been made, challenges persist in areas such as taxation, fiscal governance, and pension systems. The NRRP's comprehensive reforms and investments aim to enhance economic resilience, but sustained efforts are necessary to ensure effective execution and to address emerging issues.​

In summary, Italy's economic landscape in 2023 reflects a complex interplay of recovery efforts, external shocks, and structural challenges. While the nation has demonstrated resilience, particularly in diversifying energy sources and initiating reform plans, persistent issues such as high public debt, inflationary pressures, and the need for structural reforms underscore the importance of continued policy vigilance and effective implementation of recovery strategies to ensure sustainable economic growth.