Economic overview
The Italian economy is struggling. At the beginning of 2020, a substantial stagnation persists, following the decline at the end of 2019 (-0.3% estimated in the 4th quarter). After the production thump in December, the industry started the year still weak but with signs of stabilization, based on the PMI (Purchasing Managers’ Index) which rose to 48.9 in January and manufacturing orders in marked recovery. They keep services, where the PMI rose in January (51.4), continuing to report weak activity growth since mid-2019.
The perception of a different approach towards Europe and the consequent fall in rates on sovereign debt. The sharp drop in yields on government bonds that started in June favours economic activity, because it facilitates credit, as well as containing public interest expenditure.
The sharp turnaround, in June 2019, in the monetary policy decided by the European Central Bank, contributed to the drop in Italian interest rates, given the increase in downside risks for the economy. A similar scenario in the US led to a similar monetary turn. In the two-year forecast, therefore, there will be no normalization, which was still discussed in the spring.
Before the Coronavirus emergency, studies were showing that the monetary stimulus to the economy will grow, with the FED cutting interest rates and the ECB starting with purchases of public and private securities.
Main sectors of industry
The Italian manufacturing cycle remains weak: turnover at current values has shown substantial stagnation in the period January-November 2019, despite the growth in prices (+ 0.6%).
Positive factors include the recovery in investment in construction and the resilience of internal consumption, which allowed construction products and materials and consumer goods production sectors (food and drink, fashion system, consumer goods) to be more dynamic than the manufacturing media.
Mechanics, the leading Made in Italy sector, is moderately growing, penalized by the weakness of the cycle of investments in capital goods, both on the domestic market and internationally, in a climate of strong uncertainty that has slowed down the purchasing decisions of companies.
The leading indicators show weak signs of strengthening manufacturing activity in the coming months, limited to the internal market, against a foreign scenario that remains full of risks.
______
A study conducted by Prometeia and Intesa San Paolo in February 2020.
Taxes in Italy
Resident corporate entities are subject to a 24% corporate income tax (IRES) on their worldwide income.
In addition, they are subject to IRAP, which is generally levied at a basic rate of 3.9%. Certain surcharges and increased rates apply to companies operating in specific industries (eg, the banking sector).
Individuals carrying out a business activity directly (ie, individual entrepreneurs), or carrying out a business through a transparent entity are subject to individual income tax (IRPEF) levied at the ordinary progressive tax rates which ranges from 23% up to 43% on income exceeding EUR75,000. Local surcharges apply.
The 2020 Budget Law increases the tax liability of financial institutions and insurance companies by deferring certain corporate income tax.
Investing in Italy
Here are the main reasons to invest in Italy:
- The country has a strong and still important industrial sector as well as a strong and diversified export ecosystem.
- Italian SMEs are ery competitive with exports.
- Italy hosts major trade shows that attract buyers from all over the world.
- The country has a very good infrastructure
- Skilled workforce with technical knowledge and experience in high quality production and tourism.
- Labour market and banking sector reforms have been implemented and are beginning to show it’s fruits