EU money supported investment, but failed to trigger growth
Italy has received €166 billion from the European recovery fund. That is 85% of all the money allocated to it. The economy, meanwhile, is growing by less than one percent a year. By December, the money will run out.
Growth that is barely there
On July 30, the Italian National Institute of Statistics (ISTAT) reported that Italy’s economy grew by 0.2% quarter-on-quarter in the second quarter and by 1.0% compared with the same period last year. Formally, this was better than expected, because analysts had anticipated stagnation. The eurozone as a whole grew by 0.4% in the same quarter, while the European Union grew by 0.5%. Italy is once again at the bottom of the table.
Forecasts for the year have diverged unusually widely. In its July bulletin, the Bank of Italy expects growth of 0.6%, while the OECD and European Commission expect 0.5%. On August 4, the Parliamentary Budget Office (UPB), an independent body that reviews the government’s calculations, unexpectedly raised its estimate by four-tenths of a percentage point, to 0.9%. The reason for the increase, however, says nothing about the health of the economy: investment under the European recovery plan has proceeded faster than expected, in other words, the country is simply spending the funds it was given more quickly.
The UPB described the scale of this support very clearly in its June report. The recovery plan’s contribution to the level of GDP is estimated at 1.8 percentage points, and without it, the office states, output growth would have been “essentially stagnant.” If only the plan’s additional investment were removed from the calculations, 2026 growth would fall by half a percentage point.
Put simply: almost all of Italy’s growth is of European origin, thanks to the money invested.
Pharmaceuticals are ahead, while consumers remain stagnant
Although the economic situation is not optimistic, there are sectors that are doing extremely well. Pharmaceutical exports grew by 28.5% in 2025. Medicines became the main engine of foreign trade, while overall manufacturing grew by 3.2%. Shipments to the United States jumped by 54.1%. US tariffs hit almost everyone, but tariff exemptions applied to pharmaceuticals, allowing the sector to pull up Italy’s entire transatlantic export performance.
Shipbuilding looks even more impressive. Fincantieri’s order book grew by 17% by midyear, reaching €73.9 billion. This is roughly eight years’ worth of annual revenue. Net profit for the first half of the year nearly tripled, reaching €102 million. Ship deliveries are scheduled through the middle of the 2030s.
By contrast, retail sales in June fell by 0.1% both in monetary terms and in physical volume. Inflation stood at 2.9% year-on-year in July, while electricity and gas tariffs rose by 14.8%. That is more than five times faster than overall prices. Wages in 2026, both the UPB and the Bank of Italy warn, will once again lag behind prices: the purchasing power of labor income recovered over the previous two years has begun to erode again.
An economy in which shipyards are fully booked for ten years while households count their money at the supermarket, that is the Italian paradox of today.
€194 billion, of which not all has been spent
The recovery package’s total volume is €194.4 billion. Italy has achieved 416 of 575 milestones and received the aforementioned €166 billion. But “received” and “spent” are two different things, and the gap is crucial.
According to the government’s ReGiS accounting system, just over €121 billion had actually been spent by the end of June. European Affairs Minister Tommaso Foti specified: if approximately €22 billion transferred into financial instruments is added, the figure comes to roughly €143 billion out of €166 billion. The structure of the projects makes the picture clearer: of 672,000 projects, nearly 504,000 have been completed. Yet they account for only 23.7% of the money. The 169,000 unfinished projects hold €132 billion, or more than three-quarters of the resources. In other words, the small projects are done; the large ones are not.
One has to adhere to a very strict deadline: the final applications for payments must be submitted by September 30, while Brussels must transfer the final funds by December 31, including the tenth tranche of €28.4 billion.
Breakwater that wasn’t built
What this looks like in practice can be seen in the plan’s main maritime project, the new breakwater in Genoa. More than six kilometers long and up to 50 meters deep, the project was supposed to be completed by November 2026.
By December 2025, only 15 of the 90 caissons had been installed. The designer says another three years and €140 million will be needed. Completion has been pushed back to 2028–2029, while the total cost has risen from €1.3 billion to nearly €1.6 billion. The European Public Prosecutor’s Office has taken an interest in the construction, while the former head of the Port Authority of Genoa reached a plea agreement in a corruption case.
A similar situation has developed in Trieste. Modernization of the Molo VII terminal, worth of €100.5 million, was supposed to be completed by June 30. Even before the summer, Port Authority Secretary General Vittorio Torbianelli acknowledged, “It is difficult to say whether we will complete the work under the recovery plan by the end of 2026.”
Cargo figures explain the nervousness among logistics operators. In the first half of the year, Genoa handled 31.1 million tons. That us 1.9% less than the previous year; container traffic fell by 2.7%, while transit shipments plunged by 21.3%. The port is losing ground precisely when the promised infrastructure is still not ready.
Waiters instead of welders
The labor market looks surprisingly healthy: 24.31 million employed people, with an employment rate of 62.9% – an all-time high. But the quality of this record is questionable. In June, the number of temporary contracts increased, while the number of permanent employees and self-employed workers declined. Unemployment rose to 5.7%, while youth unemployment reached 18.4%.
S&P Global’s Purchasing Managers’ Index (PMI) figures show a clear split: services rose to 52.5 in July, while manufacturing fell to 51.3—almost at the threshold of contraction. S&P Global economist Eleanor Dennison described the manufacturing figures this way: upon superficial consideration, July appears to show growth, but the sub-indices indicate sluggish demand and increased hesitation among both companies and their customers.
In traditional industries, the situation is more straightforward. Stellantis produced around 300,000 vehicles in 2025 that is the lowest figure since 1956. At the Pomigliano d’Arco plant, reduced working hours have been extended through September for 3,750 workers. At the former Ilva plant in Taranto, reduced working hours will remain in effect through February 2027 for 4,450 employees. Italy is replacing welders with waiters, while employment statistics conceal the shift.
On the eve of 2027
What happens next is already known. According to UPB calculations, the European recovery package’s contribution to the GDP will decline from 1.8 percentage points in 2026 to 1.4 in 2027 and 1.1 by 2030. Growth forecasts for 2027 stand at 0.4% from the Bank of Italy and 0.6% from both the OECD and the European Commission.
The government is looking for a replacement for the ceasing financial motor and appears to have found one in defense spending: by 2028, it is expected to increase by approximately €12 billion, equivalent to around 0.5 percentage points of GDP. A July decree outlined the first contracts: €7.2 billion for tanks, €4.5 billion for air defense, and €3.2 billion for sixth-generation fighter aircraft. Some of this money will remain in Italian factories, including the same Fincantieri.
Financial markets are looking at all this surprisingly calm. Government debt reached a record €3.207 trillion in June, or around 138.6% of GDP at this year’s peak. However, the yield spread with German bonds remained in the range of 76–84 basis points over the summer, while Moody’s raised Italy’s rating in November for the first time since 2002.
This produces a double set of books. By credit metrics, Italy looks better than it has at any time in the past twenty years. Economically, however, it is approaching the end of European funding without having solved any of the problems for which the money was provided: productivity is not growing, consumption is stagnant, manufacturing is contracting, and the plan’s largest construction project will be completed two years after its deadline.
Billions have arrived, but they have not stimulate growth.
Source: Rossa Primavera News Agency
