Italy's Economy Essay

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Italy is largely homogeneous linguistically and religiously but is diverse culturally, economically, and politically. Italy has the fifth-highest population density in Europe, about 200 persons per square kilometer (about 500 per sq. mi.). Minority groups are small, the largest being the German-speaking people of Bolzano Province and the Slovenes around Trieste. There are also small communities of Albanian, Greek, Ladino, and French origin. Immigration has increased in recent years; however, the Italian population is declining overall due to low birth rates. The Italian economy has changed dramatically since the end of World War II. From an agriculturally based economy, it has developed into an industrial state ranked as the world's eighth-largest market economy. Italy belongs to the Group of Eight (G8) industrialized nations; it is a member of the European Union and the Organization for Economic Cooperation and Development (OECD). Italy's economic growth averaged only 0.8% in the period 2001-2008. GDP contracted as the Euro zone and world economies slowed, decreasing 1.3% in 2008 and 5.2% in 2009 largely due to the global economic crisis and its impact on exports and domestic demand. GDP recovered only part of the ground lost, growing 1.2% in 2010. In 2011 GDP grew 0.6%. The Italian industry sector is characterized by well-developed large corporations as well as smaller, family-run industries. However, the lack of raw materials poses a big challenge to the economy and is supplied through imports. Italian industries including tourism, machinery, iron and steel, chemicals, food processing, textiles, motor vehicles, clothing, footwear and ceramics decreased 12 percent in 2010. In 2010, the Italian industry sector contributed 26.7% to GDP while agriculture accounted for 2%, and services 71.3%. The biggest sector which is services employs 30.7% of the workforce. Tourism is a main sector for Italy and attracts foreign exchange plus creates jobs. However, all industries suffered smaller growth rates during the recession years and are still struggling to recover. Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 58.1% of its total trade. Italy's largest European Union trade partners, in order of market share, are Germany (12.7%), France (11.6%), Spain (5.7%), and the United Kingdom (5.1%). Italy continues to grapple with the effects of globalization, where certain countries, such as China, have damaged the Italian lower-end industrial product sector. The Italian economy is also affected by a large underground economy. The Italian statistical institute (Istat) estimates that untaxed transactions may amount to €275 billion (about $363 billion), or 18% of GDP, per year. The 15-nation European Parliament agreed that Germany, France, Italy, Spain, the Netherlands, Belgium, Austria, Portugal, Finland, Ireland and Luxembourg will switch to the newly-created currency called the euro on January 1, 1999. Since February 28, 2002, the official currency of Italy is the Euro (€) or l'euro in Italian. One Euro is made up of 100 cents. The Euro is the new common currency of members of the European Union. Euros actually became available on January 1, 2002, but there were changeover periods which varied by country. Italy’s previous currency was the Lira. Italy had a fixed exchange rate from the post war period until 1971, and throughout this period recognized that it had to maintain fiscal balance as well as pursue a monetary policy that would keep the balance of payments in equilibrium. The exchange rate was 620 lire to the dollar and Italy had one of the fastest growing economies in the world, with a stable price level and a low level of unemployment. Flexible exchange rates, however, led to the breakdown of discipline. Monetary inflation was the result. By the end of the decade, Italy decided
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