Italy has a free market economy characterized by high per capita GDP and low unemployment rates. In 2010, it was the eighth-largest economy in the world and the fourth-largest in Europe in terms of nominal GDP, and the tenth-largest economy in the world and fifth-largest in Europe in terms of PPP. It is a founding member of the G8, the Eurozone and the OECD.
After World War II, Italy was rapidly transformed from an agriculture based economy into one of the world's most industrialized nations and a leading country in world trade and exports. It is a developed country, with the world's 8th highest quality of life in 2005 and the 24th Human Development Index. In spite of the recent global economic crisis, Italian per capita GDP at purchasing power parity remains approximately equal to the EU average, while the unemployment rate (8.5%) stands as one of the EU's lowest. The country is well known for its influential and innovative business economic sector, an industrious and competitive agricultural sector (Italy is the world's largest wine producer), and for its creative and high-quality automobile, industrial, appliance and fashion design.
Italy has a smaller number of global multinational corporations than other economies of comparable size, but there is a large number of small and medium-sized enterprises, notoriously clustered in several industrial districts, which are the backbone of the Italian industry. This has produced a manufacturing sector often focused on the export of niche market and luxury products, that if on one side is less capable to compete on the quantity, on the other side is more capable of facing the competition from China and other emerging Asian economies based on lower labour costs, with higher quality products.
The country was the world's 7th largest exporter in 2009. Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 59% of its total trade. Its largest EU trade partners, in order of market share, are Germany (12.9%), France (11.4%), and Spain (7.4%). Finally, tourism is one of the fastest growing and profitable sectors of the national economy: with 43.6 million international tourist arrivals and total receipts estimated at $38.8 billion in 2010, Italy is both the fifth most visited country and highest tourism earner in the world.
Despite these important achievements, the Italian economy today suffers from many and relevant problems. After a strong GDP growth of 5–6% per year from the 1950s to the early 1970s, and a progressive slowdown in the 1980s and 1990s, the last decade's average annual growth rates poorly performed at 1.23% in comparison to an average EU annual growth rate of 2.28%. The stagnation in economic growth, and the political efforts to revive it with massive government spending from the 1980s onwards, eventually produced a severe rise in public debt. According to the EU's statistics body Eurostat, Italian public debt stood at 116% of GDP in 2010, ranking as the second biggest debt ratio after Greece (with 126.8%).
However, the biggest chunk of Italian public debt is owned by national subjects, a major difference between Italy and Greece. In addition, Italian living standards have a considerable north-south divide. The average GDP per capita in the north exceeds by far the EU average, while many regions of Southern Italy are dramatically below. Italy has often been referred the sick man of Europe, characterised by economic stagnation, political instability and problems in pursuing reform programs.
More specifically, Italy suffers from structural weaknesses due to its geographical conformation and the lack of raw materials and energy resources: in 2006 the country imported more than 86% of its total energy consumption (99.7% of the solid fuels, 92.5% of oil, 91.2% of natural gas and 15% of electricity). The Italian economy is weakened by the lack of infrastructure development, market reforms and research investment, and also high public deficit. In the Index of Economic Freedom 2008, the country ranked 64th in the world and 29th in Europe, the lowest rating in the Eurozone. Italy still receives development assistance from the European Union every year. Between 2000 and 2006, Italy received €27.4 billion from the EU.
The country has an inefficient state bureaucracy, low property rights protection and high levels of corruption, heavy taxation and public spending that accounts for about half of the national GDP. In addition, the most recent data show that Italy's spending in R&D in 2006 was equal to 1.14% of GDP, below the EU average of 1.84% and the Lisbon Strategy target of devoting 3% of GDP to research and development activities. According to the Confesercenti, a major business association in Italy, organized crime in Italy represented the "biggest segment of the Italian economy", accounting for €90 billion in receipts and 7% of Italy's GDP.
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