Italy is an increasingly internationalised economy, and export is the major driver of growth in the country, accounting for over 30% of GDP. The country is characterized by a solid manufacturing sector, diversified economy, and a deeply rooted export culture. Italy has the fifth manufacturing sector production surplus among the G-20 countries, excluding the energy and mineral sector. If energy and mineral sectors are also included, the trade balance will still be positive, with a surplus of 40 billion dollars. Thus, the economy is characterized by the relative importance of its manufacturing sector. The sector represented 16.7% of the total GVA of the economy in 2011, but this share has been declining over time, especially due to the global financial crisis. Even though globalisation has caused some changes in the Italian manufacturing sector, reinforcement of specialisations in the sector has increased the trade surplus. As a response to the increased competition from low-cost countries, restructuring within the sectors has been done by Italy. However, it will not warrant full recovery of the country’s competitiveness. The exports from the manufacturing sector in Italy had been facing stiff competition from various countries. The Italian manufacturing sector remains strong in traditional, low-skilled labour-intensive sectors for which the global demand is growing below average. Italy’s export growth performance and a comparative analysis of China’s economy are brought up in the article.
Export Growth of Manufacturing Sector in Italy
The manufacturing sector had been a vital export-oriented area of Italy until the recession took hold of the economy. The double-dip recession that started in 2008 affected the manufacturing sector badly and the number of firms contracted by about 19%. An average decline of 24.5% in manufacturing output and a decrease of 8% points in the capacity utilization rate had been its effect. Table(1.1) given below is the data on the Value Addition of the Manufacturing Sector to the Italian GDP. The recent five-year data shows an average GVA of 14.5%. Despite reducing the volume of goods produced in the Manufacturing sector in Italy, productivity remains almost unchanged. One of the reasons for the modest productivity growth of the economy is the labour market reforms that focused mainly on flexibility in the wage-setting mechanism.
Year Value Added (%)
Table 1.1 (Source: STATISTA 2021)
Stable value addition in the manufacturing sector can thus be seen in recent years, but the export performance shows an opposite trend. The consumer demand for various manufacturing goods outside Italy had been because of their quality assurance. The five-year data on the export growth of the manufacturing sector is given in table(1.2). The data shows that the export growth was stable until 2019. The sector has achieved up to 3.8% of growth, which is significant considering the level of competition they face from emerging economies. The pandemic has shaken the economy badly, and negative growth was witnessed in 2020. The market specialisations introduced earlier were of no use to the economy due to the subsequent lockdowns and fall in the production and sales of manufacturing items. But the economy has devised ways to improve the declined growth, and positive export growth of the sector is expected in 2021 and 2022.
Year Export Growth In Manufacturing Sector(%)
Table 1.2 (Source: ISTAT 2021)
Comparison of Exports in Manufacturing Sector – Italy Versus China
Italy’s specialization model has exposed the economy to increased competition from other emerging economies. Their specialization in low and medium technology products implies an export product mix similar to China and other emerging markets that can benefit from low labour costs. The impact of Chinese exports on Italian exports is significant considering the risk of competition. The similarity of Italian exports and Chinese exports is one of the highest among European Union countries. In high-tech exports, China has built a stronger position than Italy. The overlap has increased in the skill-intensive areas of the manufacturing sector, but the quality of the Italian products represents a safeguard from Chinese competitive pressure. Thus, the increasing role of China in global trade since its accession to WTO in 2001 has resulted in some displacement of Italian exports. Italy’s specialization in low-skilled production has often been used to explain the loss of world market share over the last few years. But China has increased its share in the global market, catching up with developed countries.
Year Export Share of Italy Export Share of China
1990 4.9 1.8
1992 4.2 2.4
1994 4.1 2.9
1996 4.5 2.8
1998 4.2 3.2
2000 3.8 3.8
2002 3.9 5.0
2004 3.9 6.2
2006 3.5 8.0
2008 3.2 8.8
Table 1.3 (Source: UNCTAD)
The above table represents a comparative analysis of the percentage change in the export growth of the manufacturing sector and Italy and China’s subsequent world market share. The trend line of Italy is declining while China is increasing. Notably, both countries had an equal market share in 2002. A steady and constant fall in the export share of Italy while a quick upward movement in the share of China can be identified from the table. The Chinese competitive advantage has caused strong pressure on export prices in the manufacturing industry. Thus it has contributed to a decrease in the output prices of manufactured goods in Italy. Therefore, over the last decades, China’s entry into the international market has come at the expense of a large number of developed countries. Italy, whose structural composition of exports is based on traditional goods, seems most at risk. The qualitative upgrading of Italian exports can offset at least some part of the competitive pressure from China.
The toll taken by the financial crisis on the Italian manufacturing sector has been tremendous in terms of the loss in output, employment, and export. The overall production was around 25% during the pre-crisis level and has considerably decreased during post-crisis. When a previous five-year data is considered, export from the manufacturing sector stands around 3%. Comparing the export growth with China, the downfall of Italian exports is very significant. However, Italian manufacturing maintains 15.5% of GVA added to the GDP and is still above the EU average of 15.1%. The Italian manufacturing sector can focus on improving the quality of the products to face emerging competition.
-Roshitha Sunil (Student of MA in Applied Economics at Christ University, Bangalore)
Picture Credits: bloomberg.com