Fiscal consolidation, excessive bureaucracy hindering innovation and competitiveness, and a shrinking working-age population. But also inefficiency in the allocation of NRP funds, excessive ties between the state and the banking world, and the urgent need for structural reforms in many areas of public administration. These are the major problems plaguing the Italian economic system, according to the Country Risk Atlas 2024 created by experts from insurance giant Allianz, which reviewed 83 economies around the world to define a network of countries that are more or less risky from a business perspective. Starting precisely with Italy, it is included in the risk map at an intermediate level (medium risk) between countries considered safe, such as France, Spain, Germany, the United States, India, China, and Canada, and others flagged as high risk, including Russia, Iran, Argentina, Venezuela, or Turkey.
“Italy has recovered very well from the pandemic and is the best-performing of the big four European economies,” the Allianz paper says. GDP is growing 3.4 percent above pre-pandemic levels, despite a slowdown in recent quarters. However, the massive rebound in investment experienced in 2021-2022 (+22% and +10% year-on-year, respectively) has tapered off in 2023 and will continue to move at a subdued pace in 2024 given the high interest rate environment and some delays in the implementation of Next Generation Eu projects.
In fact, Italy has been very exposed to the energy crisis (gas accounts for 43 percent of the country’s supply), which has had a significant impact on households’ purchasing power and savings rate while limiting manufacturing production.
On the labor market front, on the other hand, Allianz experts pointed to an improvement in Italy during 2023 that should, however, run out as early as 2024. “The number of employed people has remained at a record high and the number of inactive people at record lows, while the number of unemployed people has increased slightly in recent months.” The unemployment rate is low at 7.6 percent but is expected to worsen in 2024 due to the lagged effects of the current economic slowdown.
In the labor market, structural weaknesses remain, however: Italy has one of the lowest female labor force participation rates in the Eurozone and the lowest employment rate. The analysis points out a situation that requires major policy interventions (e.g., the provision of childcare) to strengthen the presence of women in the labor force.
And what about the business community? Business insolvencies resumed after 2020, yet they remain well below pre-pandemic levels. “The tightening of monetary policy and the impact on firms’ financing costs will increase the number of insolvencies in 2024–25,” it says. Particularly suffering will be the manufacturing sector, which recorded a very weak 2023 due to the persistent decline in demand without showing signs of improvement in 2024.
All this, net of the problems related to the difficulties in unloading the potential linked to European funds on the ground,. Italy is set to receive 194 billion euros in Next Generation EU funds (122.6 billion euros in loans and 71.8 billion euros in grants) to stimulate growth. “The efficient implementation of reforms and the timely allocation of funds, together with the strengthening of administrative capacity, will be crucial to kick-starting a sustained path toward the country’s green transition and digital transformation.”
The map of risks in the rest of the world
Beyond the analysis of Italy, the risk mapping prepared by Allianz revealed 21 instances of rating improvement in country risk during 2023 and only four downgrades. This is an inverse trend from 2022, when Allianz Trade revised the ratings of only 8 countries to positive while 17 others were downgraded. “In 2022, our country’s risk ratings were largely affected by the repercussions of the war in Ukraine. However, in 2023, in the face of one of the most aggressive global monetary policy tightening cycles ever and despite some major global shocks, the global economy has shown resilience,” explained Ana Boata, head of economic research at Allianz Trade. “For this reason, we have upgraded the risk ratings of 21 economies, equivalent to about 19 percent of global GDP.”
Africa saw the largest number of upgrades (10, including South Africa, Algeria, Tanzania, and Morocco), followed by Europe (6 upgrades, including Greece, Croatia, Cyprus, Slovenia, and Bulgaria), while in Asia and the Americas only China and Uruguay saw their country’s risk performance improve. “Africa remains the continent with the greatest difficulties in terms of liquidity and access to international markets, at a time when financing costs are rising,” Boata continued. “In this context, the current cycle and continued fiscal and monetary policy efforts could lead to further upgrades in the Americas, while Africa and the Middle East are more likely to lag behind due to resurgent conflicts.”
Overall, when averaged across all of Allianz Trade’s country risk ratings, global corporate non-payment risk in 2023 remained stable compared to 2022 and recovered from 2019 levels.
What can be expected in the coming months? Several factors could challenge the country’s risk landscape, leading to further downgrades in 2024: on the one hand, liquidity problems caused by high public and private debt and interest rates that remain at very high levels; on the other hand, below-potential growth and the less ability of companies to pass on increases to consumers, which will lead to reduced revenue growth and difficulty in planning investments. Also weighing on country risk will come a new increase in corporate insolvencies (up 8 percent globally in 2024), particularly in Europe and the United States. A figure that could worsen if global supply chains are not reshaped, which could penalize countries that already suffer from a negative trade balance and possess little ability to generate alternative tax revenues. But there is also political risk to consider. Indeed, in 2024, citizens of economies that account for as much as 60 percent of global GDP will have to go to the polls.