This report investigates the sources of the dismal growth performance of Italy in the 1990s. Over the last decade, Italy experienced a marked economic slowdown, with real GDP growing by an annual average of only 1.2%, down from 2.2% in the 1980s and significantly lower than the average annual rate of 1.8% in the euro area. Moreover, the gap between Italy and the other EU countries has widened in the last few years.

This poor growth performance has raised the question of whether the slowdown was due to temporary factors - such as the exceptional macroeconomic adjustment which Italy underwent during stage two of EMU and the effects of the more recent slowdown in the global economy - or rather it had to be taken as a more worrying indication of a long run disease of the Italian economy.

To answer this question, the study reviews the economic policies of the 1990s and the behaviour of domestic and external demand. Besides the assessment of the possible impact of the macroeconomic policies on GDP growth, the report includes a critical examination of long-term trends and structural issues, including a review of the many reforms launched in the 1990s and a microeconomic analysis of Italy’s pattern of trade specialisation.