Stuck in a rut? Italy’s weak export performance and unfavourable product specialisation

The Italian economy has shown weak growth ever since the beginning of the 1990s. More recently it has developed two particularly striking, interlinked symptoms: a discouraging performance by exports and the longest stagnation of output in the tradable goods sector in post-war history. In contrast to previous episodes of weak growth, the current difficulties are not caused by supply shocks such as excessive wage increases. On the contrary, the dismal export performance has fallen within a period of wage moderation, and, since the late 1990s, of buoyant employment growth. The persistent loss of export market share would seem to chiefly result from the unfavourable product specialisation of the Italian economy - more recently coupled with a marked slowdown in productivity growth. Italy's product specialisation, unlike that of countries such as Germany or France, has not significantly changed over past decades in reaction to global economic developments. Italian industry remains strong in traditional, low-skilled labour intensive sectors for which global demand is growing below average. The inertia is generally attributed to a number of structural factors which are hampering change, including low levels of R&D investment, low human capital, low competition - issues that fall within the remit of the Lisbon strategy. Economic adjustment.

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