The resilience of Italy's external sector amidst risks and challenges

This paper explores recent macro developments in Italy's external sector. Despite a succession of adverse shocks and a challenging international context, Italy's export performance between 2019 and 2024 was quite resilient, overall, boosted by cost competitiveness gains, geographical and sectoral diversification, good quality positioning, the recovery in international tourism, and by growth in business, financial and insurance services. The current account (CA) balance has been persistently positive, with the temporary exception of the 2022 energy crisis. Its more modest level in 2024 (relative to 2019) mainly reflects a weaker investment income balance, due to the higher reactivity of external liabilities to increased interest rates compared with external assets. In our view, the CA balance is broadly in line with fundamentals; external sector resilience is confirmed by a solid creditor net international investment position (NIIP). Looking forward, exports will be negatively impacted by US tariffs, exchange rate appreciation and growing competition from China, although Italy is projected to maintain both a CA surplus and a creditor NIIP in the short term. Over the medium term, the country's ability to navigate the significant challenges arising from geo-economic fragmentation, the green and digital transitions, and structural changes in world demand will be key to a sound performance.