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New elements of uncertainty are emerging, while existing ones remain unresolved. The global and European economies are facing a combination of known risks to which new uncertainties are being added. On the one hand, geopolitical factors continue to weigh heavily, while on the other, the wait for the new US administration to take office, the risk of a slowdown in the Chinese economy and the political dynamics in France and Germany exacerbate the fragility of the framework. The level of uncertainty in the last decade is structurally higher than in the previous one. After the 2020 peak linked to the Coronavirus pandemic, the degree of uncertainty had temporarily dropped, only to rise again two years later with the outbreak of war in Ukraine. More recently, uncertainty has risen again, albeit more moderately, linked to the doubt about the outcome of the US elections (Chart A). Although by now the outcome of the election leading to Donald Trump's second presidency is clear, uncertainty is expected to persist at least until his inauguration in January and the first steps to be taken by the new administration.
Shocks and other elements of uncertainty hamper businesses through various channels. The international landscape has long made it impossible to operate in a 'business as usual' climate. The US-China tensions have already produced results in terms of a greater detachment of European as well as US supply chains from Chinese ones. If in the immediate term the impact has been limited for Italy given the relatively low exposure of its exporting companies to the Chinese market, indirect effects are inevitable due to the brake that the decoupling entails for the German economy, already hurt by energy price rises following the Russian invasion of Ukraine. The weakening of economic fundamentals is aggravated by the political fragilities that are emerging not only in Germany, but also in France. In Germany, Chancellor Scholz has already badly lost the confidence of the Bundestag and the country is heading for early elections in 2025. France may also have to resort to early elections in 2025 to cope with the instability of the current government. As the EU is the largest market for Italian exports (including machinery), this could result in a general weakening of the foreign component of consumption.
Adding to the complexity of the scenario is the geopolitical instability in the Middle East, which has had direct consequences on freight transport, lengthening journey times and increasing the costs of sea routes.
Alongside the effects of the numerous shocks listed above, those produced by long-term trends such as digitisation and climate change must be considered. Indeed, companies are constantly having to innovate both to keep pace with technological progress and to adopt increasingly sustainable production strategies. The result is a framework characterised by an extraordinary degree of complexity (Chart B).
The global economy remains resilient, despite heterogeneity across countries and sectors. Global GDP growth is expected to strengthen slightly to 3.3% in 2025 and remain stable at this level until 2026. Inflation continues to moderate and the core component is now within central bank targets for most economies. Tensions on the labour market have also eased, although unemployment rates generally remain at or near historic lows. However, risks cast a shadow over what would otherwise be a relatively positive central scenario. The main risks relate to a further escalation of geopolitical tensions, inflation that could turn out to be more persistent than expected, and an abrupt reassessment of risk in the financial markets.
Automation, creativity and technology (ACT) of Italian machinery as a lever of competitiveness. In facing the international scenario, Italy can count on highly sophisticated exports of capital goods. In particular, on those that stand out for their high intensity of automation, creativity and technology. ACT encompasses 225 product categories that are divided into 12 segments related to the production of machinery and united above all by the high degree of precision, the increasingly pervasive presence of electronics compared to mechanics, the agility in adopting tailor-made solutions, and a growing service content in the sales offer (Chart C). For almost all of the categories of goods considered (212 out of 225), Italy expresses a competitive advantage both in terms of the price charged for the sale, and, at equal
price, for the higher quantities of machinery sold.
Exports of ACT goods slow down in the first half of 2024, compared to the good performance in 2023. Despite the high degree of uncertainty, in 2023, Italian companies in the ACT industrial machinery sector recorded annual growth at current prices of 7% compared to 2022, a year that in turn had marked a strong increase (+9.4%). The first seven months of 2024 saw a sharp slowdown, resulting in a contraction of -1.7% compared to the same period of the previous year.
Preliminary results for the first seven months of the year indicate that 2024 will be a stalling year for machinery exports, especially for the important component targeting the European market. Machinery exports to North America and the Middle East continued to grow, with year-on-year increases of +2.7% and +10.5% respectively. In contrast, East Asia and Europe showed signs of slowing down, with declines of -6.3% and -2.5% respectively. These results not only reflect the dynamics of regional demand, but also the impact of industrial and trade policies adopted by competitor countries, which, in the case of Asia, are inevitably affected by the decoupling from Western supply chains.
The growing competition in technological and industrial sectors at a global level makes it central for Italian companies to reorient their commercial strategies, aiming to consolidate their presence in the most dynamic markets and to diversify their export areas to reduce the risks associated with geographical concentration. Among the most dynamic sectors are packaging and wrapping machines (with an increase respectively of 18.9% in 2023 and 6.8% in the first seven months of 2024) and machine tools, robots and automation (+23.6% in 2023 and +13% in the first seven months of 2024).
Italy is among the top countries in terms of market share of ACT machinery exports. In 2022, Italy ranked fourth, behind China, Germany and Japan. In the four-year period 2018-2022, Italy's share declined slightly (8.2% in 2022 from 8.8% in 2018) and still held up better to China's expansion (18.1% from 13.5%) than Germany (17.8% from 19.6%) and Japan (9.3% from 10.6%).
The US and Germany alone absorb just under a quarter of Italian machinery. The main importers of ACT machinery are the United States (12%), Germany (10.3%), China (6.4%), France (6%) and Spain (4%). These five countries absorb more than one third of Italian ACT machinery exports, with a total share of 38.6%. When considering the top ten destination markets, the share rises to 54.5%, indicating a significant concentration of Italian exports towards a relatively small number of countries, with a strong orientation towards the main advanced markets.
Despite this, Italy ranks third in terms of the number of markets reached, presiding over 50.6% of those possible (42,510 in all) compared to 72.8% for China and 53.5% for Germany.
ACT exports are worth EUR 32.1 billion. The value of Italian ACT machinery exports worldwide can be divided by destination markets. Those with the greatest weight in Italian ACT exports are advanced markets, which absorb more than 21.6 billion euros. The value of exports to emerging markets, on the other hand, is more limited, recording EUR 10.5 billion. ACT's exports have grown particularly in the Americas, both North and Latin America and the Caribbean, destinations that have experienced the greatest growth in recent years. Chart D provides an overview of the geographical distribution by percentage share of Italian ACT machinery exports worldwide.
...and about 8 billion additional potential. Although the outlook for world demand is slowing down, with European economies experiencing the most marked slowdown, the potential for expanding ACT exports remains significant. The exploitable potential would seem to be distributed rather equally between advanced and emerging countries (around EUR 4.6 billion for the former and EUR 3.3 billion for the latter), thus suggesting that companies should increase their market shares in both.
Advanced and emerging markets pose different challenges but both offer high exploitable potential. As far as advanced markets are concerned, the considerable size of the US market weighs heavily in determining the potential for Italian ACT exports: the US market alone accounts for 760 million additional export potential. This is followed by Germany and France with about 470 million each. The power transmission mechatronic systems and components sector is the most promising in all these markets, while the most frequent competitors are China and Germany. Among the major emerging countries, China leads with an additional potential of around EUR 760 million, followed by India with EUR 472 million and Turkey with EUR 364 million. In addition to Mechatronic Power Transmission Systems and Components, the component of Machinery for the Textile Industry is high in the emerging countries, whose main competitors to Italy remain China and Germany. For more details on the most recurring geographical destinations, main segments and related competitors, see Table A.
The exploitable potential in emerging markets is accompanied by higher credit risk. Geopolitical tensions and conflicts contributed to a marked deterioration in risk in various countries. Emerging countries have been most affected by these factors, both because of their more exposed economies and because of higher levels of risk from the outset, more fragile economic fundamentals and regulatory systems that are further removed from Western standards. In many cases, already since the pandemic crisis, there has been higher public and private indebtedness, which brings with it a generalised deterioration in credit risk. To understand the implications, the analysis of potential is accompanied by an analysis of the risk posed by each market (Chart E). It is not surprising that Russia and Iran rank so high on the credit risk scale, as they are two countries involved, albeit in different capacities, in conflict scenarios. The advanced countries, which, moreover, represent the most important destination for ACT exports, remain relatively safe. Finally, China, the country with the greatest export potential among the emerging countries, cannot be overlooked. At present, the credit risk is not high, but a marked economic slowdown or the current delicate international scenarios could worsen its profile.
The new international balances bring Latin America back to the centre in international supply chains. The Latin American and Caribbean (LAC) region seems to have embarked on a virtuous path of growth and development in recent years. According to World Bank estimates, in 2024 the GDP growth rate of the LAC region is expected to be around +1.9%, and the forecast for 2025 is +2.6%. However, the growth recorded so far and that expected for the future remain lower than forecasts for other major geographic areas. Growth prospects could be further enhanced by the nearshoring or friendshoring trends taking place in the US. Such policies could in fact represent an opportunity for LAC countries to attract manufacturing activities to their territory in light of the competitive advantage due to their geographical proximity to the US. In this framework, it is crucial for Italy to characterise itself as a strong and credible trading partner in the region, and in part it already seems to be on the right track. The weight of the LAC area on Italy's total exports stood at 3.1% in 2023, for a value of around €19.3 billion, registering an average annual growth rate (CAGR) of 3.6% since 2014. The main trading partners are Mexico with a share of 32.9% in 2023 and Brazil with a share of 28.2%. They are followed, at a considerable distance, by Argentina (7.2%) and Chile (6.8%).
Mexico first in terms of demand for ACT goods in the area. About 90% of the world export of ACT goods to the Latin Caribbean area is captured by six economies: Mexico, Brazil, Argentina, Chile, Colombia and Peru. Among these, Mexico ranks first as the main outlet market for ACT goods in the LAC region (45.1%). The Central American economy is also the area's main importer of machinery worldwide. Moreover, Mexico is the most open economy among the main ones in the area, with trade accounting for 88% of GDP. The main lever is certainly its proximity to the neighbouring US market, but it is not the only one. Mexican manufacturing is particularly diversified, especially when compared to that of many peers in the area. Although still formally labelled as emerging, the country is in fact an advanced economy in terms of manufacturing diversification. Moreover, the labour force operating in the local productive fabric is well educated, skilled and available at relatively competitive costs. The multiple policies implemented by the government to promote multi-sector industrial development and attract investment in high-tech sectors have created a favourable business environment, making Mexico a global player in the production of complex, high value-added goods. The automotive industry remains a cornerstone of Mexican manufacturing, but it is no longer the only sector the country focuses on. In recent years in particular, Mexico has emerged as a hub for high-tech manufacturing: sectors such as aerospace, medical devices and electronics have seen significant growth, helping to expand the country's manufacturing base and attract foreign investment. It is therefore not surprising that the Mexican market ranks among the top five emerging countries by export potential for ACT goods.
Italy is already involved in promoting the industrialisation of LAC countries, but there is room to strengthen cooperation. Italian companies are already involved in projects aimed at strengthening technological development in the area. In this sense, the Technological Centres created in Latin America, also thanks to the contribution of the Confindustria System Associations, are certainly worthy of attention. They are a vector for Italian technology to enter the region's markets, offering training in its use and quality support for the industrial development of the receiving countries. Examples of these are CESAT (technical centre for the plastics and rubber industry, designed primarily to provide training and assistance to numerous local companies) in the state of Puebla and CIMMATH (Italian-Mexican innovation centre for high-tech manufacturing) in the state of Hidalgo, both in Mexico. More significant results in terms of the internationalisation of our companies could also come from greater participation in international cooperation programmes, in which Italian participation is still weak. Among the calls for tenders issued by the region's multilateral bank, the Inter-American Development Bank (IDB), for example, it can be observed that out of the more than USD 33 billion allocated by the institute over the last 10 years (for about 80,000 projects of various types), Italian companies were awarded just 90 tenders, amounting to a mere USD 203 million, corresponding to less than 1% of the total, most of which were in the 'engineering consultancy' sector. However, looking at the nature of the tenders put out to tender by the Bank, one can see that many of the countries in the region are involved in projects whose implementation would require the import of Italian machinery and technology. Many concern sectors such as electro-mobility, transport infrastructure, the creation of energy storage and transmission systems, and others simply support industrial strengthening programmes.
Realising the potential goes through capacity building and also depends on policy choices. The fact that there is ample room for improvement for Italian machinery exports does not mean that this is automatic. Increasing exports implies an upstream increase in production, which in turn requires a growth in investments. To this end, a coordinated effort by companies and institutions is required to foster a generalised strengthening of the Italian production system and its competitiveness along several axes. While companies should commit themselves to allocating resources to productive investments, institutions should spur this process by mitigating the elements of uncertainty that condition investment choices and provide incentives for all companies that decide to reinvest their profits in the purchase of capital goods.
Digitalisation remains the Achilles heel for Italian and European companies. As made clear in the report 'The Future of European Competitiveness', Italy and Europe need to close the competitiveness gap with China and the US. Focusing on the productivity gap between European and US companies, it is clear that this is largely explained by the technology sector: the EU is weak in emerging technologies that could prove key to future growth, with only four of the top 50 technology companies in the world. Moreover, there is currently no company on the European continent with a market capitalisation of more than EUR 100 billion created in the last 50 years (in the US, the six companies with a market capitalisation of more than EUR 1 trillion were all created during this period). The low dynamism of EU companies is also reflected in a weaker performance in research and innovation (R&I) spending, EUR 270 billion less than their US counterparts in 2021. The central issue does not seem to be that Europe lacks ideas or ambition, as there are many talented researchers and entrepreneurs filing patents. The biggest challenge is to translate innovation into commercialisation. Innovative companies that want to grow in Europe are hampered at every stage by inconsistent and restrictive regulations.
Artificial intelligence (AI) will be central in all areas of production. Strengthening digitisation is necessary not only to remain competitive in new technologies, but also to integrate AI into existing industries so that they can stay ahead in the decades to come.
It is necessary from the outset to clear the field of misunderstandings: AI is now a structural factor in our socio-technical-economic system, being able to reduce inequalities of a cognitive nature as it is language-based and thus characterised by unparalleled ease of use. We will have to get used to considering the adoption of AI in the same way as the introduction of electricity: to represent, on the one hand, its pervasive impact and, on the other, its potential transformative effect on the functioning dynamics of people, businesses and objects. The artificial intelligence market in Italy is growing substantially also because it is still on a very minimal scale. In 2023 it marked +52%, reaching a value of EUR 760 million. However, it must be considered that Europe invests 5% of what the US does in IA and that Italy is in the European rear. The picture is therefore growing, but we are starting from a situation of serious delay.
SMEs are finding it harder to keep up with AI: in 2023, 61% of large enterprises have an AI project under their belt, at least at the trial level, while it drops to 18% among small and medium-sized enterprises. Adoption in enterprises is broadly stable compared to 2022.
In an increasingly uncertain environment, it is good to strengthen existing trade agreements and lay the foundations for new ones. The succession of events that have shaken global economies, making production chains more fragmented, has highlighted the importance of making arrangements that ensure smooth operations even under highly complex conditions.
For Italy, this means strengthening its trade ties mainly with EU countries, an important outlet for ACT machinery sales and the main source of direct investment to Italy, but not only. In fact, it will be crucial to strengthen the ties between the US and the EU and to establish new free trade agreements to cope with increasingly intense competition, reinforced by agreements between third countries, such as the Regional Comprehensive Economic Partnership (RCEP) in Asia. The synergies produced by new international trade agreements, despite the fact that they exclude Europe from their signatories, should nevertheless be exploited by Italian companies to strengthen their position in those markets. In addition, the recent conclusion of the EU-MERCOSUR trade agreement, although still lacking some formal steps for its provisional entry into force (such as the approval of the Council and the European Parliament), envisages important opportunities for the expansion of Made in Italy shares in the region, particularly in the components and technology sectors, given the liberalisation granted by Mercosur in the automotive, car parts and machinery sectors.
For a complete overview of the priority axes of intervention to boost the competitiveness of ACT goods exports, please refer to Table B.
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