While Germany's economy is slowing down, Italy is seeing sustained growth. However, this is largely attributed to subsidies and increased debt rather than Prime Minister Giorgia Meloni's economic strategies.

While governments in Rome were accustomed to announcing gloomy growth forecasts and dismal debt rankings in the years preceding the pandemic, the country is now rapidly emerging as Europe's growth engine.

In the last quarter, the Italian economy expanded by 0.6%, while the German economy contracted by 0.3% during the same period. Beyond this brief three-month snapshot, other indicators for Europe's third-largest economy are remarkable.

"The Italian economy has experienced a growth of 3.8% since 2019," stated Jörg Krämer, chief economist at Commerzbank. He noted that this growth is "twice as much as the French economy and five times more than the German economy," he informed DW.

In Germany, the outlook appears grim. The Organization for Economic Cooperation and Development (OECD) predicts a growth of 0.3% this year for Germany. Leading German experts anticipate even lower growth, at just 0.1%. In contrast, Italy is projected to grow by 0.7% this year, according to the OECD.

The Italian stock market is currently experiencing a wave of optimism, with the FTSE MIB benchmark index, which consists of 40 major companies, recording a remarkable surge of approximately 28% last year. This growth outpaced other European stock market indices, indicating Italy's strong position in the market. Consequently, Italy seems well-positioned for further growth in the near future.

Initially, economists responded cautiously when Giorgia Meloni assumed office as prime minister in October 2022. During the election campaign, Meloni and her Brothers of Italy party advocated for a nationalist "Made in Italy" economic approach, expressed concerns about migrants and did not distinctly distance themselves from Russia.

After her election, the German weekly Stern labelled her as the "most dangerous woman in Europe." However, in terms of economic policy, Meloni has largely adhered to the same path as her predecessor Mario Draghi. This strategy appears to be paying off for Italy, particularly in the bond market, as the interest rate at which the country borrows money has returned to pre-election levels.

During a press conference earlier this year, Meloni attempted to attribute the economic upturn to her administration. She asserted that the lack of political stability in the past had hampered economic growth, speaking from a position of confidence.

However, the extent of Meloni's contribution to the growth is questioned. According to Krämer from Commerzbank, the robust growth is primarily attributed to Italy's loose fiscal policy, resulting in a significant increase in new debt. Prior to COVID-19, Italy's new debt stood at 1.5% of gross domestic product (GDP), but it surged to 8.3% of GDP in the first half of 2023.

Moreover, the country's overall debt burden is expanding. In January, the EU Commission projected that Italy's debt would surpass 140% of GDP this year and continue to rise through 2025. In comparison, Germany's debt ratio is 66%, while France's is nearly 100%.

Image source: DW News