"The industry of a country is the source of all its wealth."

Adam Smith, 1776, The Wealth of Nations

After several years, Confindustria is once again publishing a report dedicated to Italian manufacturing. The initiative responds to the need to have an organic and updated picture of the characteristics and evolution of the manufacturing sector, which is confirmed as a pillar of the national economy and an essential component of the country's competitiveness. Leveraging the analytical rigour of its Study Centre and the wealth of information deriving from the dialogue with the association network, Confindustria is in a unique position to offer a systematic reading of the current industrial dynamics, combining data analysis with direct knowledge of the entrepreneurial reality.

This year's volume is divided into four main chapters, united by the common thread of competitiveness. The first chapter offers an X-ray of Italian manufacturing: after a long sequence of shocks - economic, health and geopolitical - that have profoundly affected production activity, it offers an up-to-date snapshot of the sector and analyses the structural changes that have occurred over the last decade, highlighting their implications for the performance of the Italian industrial system.

The second chapter deals directly with the issue of competitiveness, which is now more than ever at the centre of economic and political debate. It is a complex concept and the analysis attempts to answer a crucial question: how competitive is Italian manufacturing? To this end, we consider both 'internal' competitiveness, measured through productivity dynamics - a key element for long-term growth - and 'external' competitiveness, linked to the ability of companies to establish themselves in international markets.

The third chapter includes two thematic in-depth studies, conceived with the aim of disseminating to a wider audience the results of analyses based on causal evaluation methods, capable of credibly identifying cause and effect links between public interventions and economic performance. The first insight reports three studies that, from different perspectives, analyse the value of skills, labour market flexibility and inclusion for industrial competitiveness. The second insight is devoted to the return of industrial policy: the number and scale of public interventions in support of industry have grown rapidly in recent years, and the studies reported offer some initial evidence and reflections on the potential implications.

Finally, the Report closes with a chapter of sectoral sheets (at the level of the two-digit ATECO classification). Through an information base that integrates quantitative and qualitative analyses, the chapter aims to offer a glimpse of the complexity and diversity present within the national production system. The section enhances one of Confindustria's main strengths: direct knowledge of companies and constant dialogue with the production system. Thanks to the contribution of the sector associations that are members of Confindustria, the factsheets offer a qualitative reading of the competitive advantages, obstacles and policy intervention priorities identified by manufacturing companies, outlining a concrete picture of the conditions needed to strengthen the growth and resilience of individual sectors.

Radiography of Italian manufacturing

• Italian manufacturing continues to play a significant role in the international context and for the national economy: it is the 8th largest in the world and the 2nd largest in Europe (2.1% of global manufacturing added value and 13% of European manufacturing added value) and generates 15% of Italy's GDP - a percentage that doubles when considering allied industries. Moreover, it realises 35% of investment in machinery and equipment and 50% of R&D expenditure, and has higher average productivity levels than other sectors, enabling it to pay higher wages than services (+20% in 2024), construction (+21.0%), the public sector (+8.3%) and the total economy (+14.5%).
• It has a very high degree of diversification compared to other European manufacturing, which contributes to its resilience to global shocks. Its sectoral composition has remained relatively stable over the last decade, with specialisation concentrated in medium- and low-technology-intensive sectors, accounting for around 60% of manufacturing value added - a lower share than in Spain (64%) but higher than in France (51%) and Germany (39%). Instrumental mechanics (14% of the manufacturing value added), metal products (13%) and foodstuffs (9%) maintain a significant incidence on national manufacturing; textiles (25% of the European sectoral value added), clothing (47%), leather goods (50%) and furniture (20%), on the other hand, have a particularly high weight in the European context; finally, metallurgy, chemicals and rubber-plastics are the sectors with the greatest upstream and downstream connections along the production chains.
• It is characterised by a high degree of openness to international markets and a broadly diversified export composition: in 2023, exports reached 48.2% of manufacturing output and generated a trade surplus of around EUR 120 billion, driven mainly by instrumental mechanics. The main export sectors are mechanical engineering (17.1% of manufacturing exports, average 2023-2024), textiles-clothing-leather (10.8%), food and beverages (9.8%), pharmaceuticals (8.6%) and motor vehicles (7.3%). Pharmaceuticals distinguished itself by a particularly significant increase in trade openness.
• It is still oriented towards small and micro enterprises. In 2023, only 42% of manufacturing value added was generated by large enterprises (250 or more employees), compared to 74% in France and 75% in Germany; symmetrically, micro (up to 9 employees) and small (10-49 employees) enterprises maintain a very significant role, with a total contribution of more than 30% of value added, compared to around 10% in Germany and 14% in France. This reflects both the high number of small and micro enterprises and the relatively small size of large Italian companies. However, a significant qualitative transformation is underway: over the last decade, an intense selection process has reduced the number of micro enterprises by almost 12%, while a significant growth in average size is observed among large enterprises. This evolution is relevant considering the relationship between firm size and productivity: in Italian manufacturing, all other things being equal, efficiency increases significantly with firm size, and medium and large Italian firms show higher productivity levels than their German, French and Spanish counterparts.
• It has consolidated a long process of capital strengthening over the years, with potentially positive implications on investment, resilience and competitiveness. The share of equity in total liabilities increased from 34.5% in 2007 to 48.9% in 2023, closing the gap with European competitors. The post-pandemic period, however, accentuated the heterogeneity among companies, highlighting the presence of a non-negligible share of companies that are still relatively fragile. The strengthening of capital has been brought about, at least in part, by a strong reduction in indebtedness, which is widespread in all sectors: the stock of loans has fallen in aggregate from 100% in 2011 to 56% in 2024 and, consistently, the share of bank loans in total liabilities has fallen from 19.5% in 2007 to 12.3% in 2023. Financial soundness is relevant for the productivity of Italian manufacturing firms: other things being equal, the loosening of financial constraints is associated with an increase in productivity between 5% and 10% on average, and the effect is more pronounced in sectors where intangible capital plays a more relevant role.
• It maintains a higher propensity to invest than the leading European economies. Between 2015 and 2024, investment in fixed capital averaged around 25% of manufacturing value added, a level higher than that recorded in France (22%) and Germany (20%) and broadly in line with Spain. At the same time, however, the growth of available physical capital shows relatively weak dynamics in international comparison, even when considered in relation to labour input. Investment in tangible goods has historically accounted for the largest share of manufacturing investment: the average investment propensity over the last decade was 18.1% of added value, consolidating the already existing gap with France (average 11%) and Germany (9.3%). On the contrary, although growing over time, the propensity to invest in intangible assets (15%, only partly included in fixed capital investment) remains significantly lower than that observed in Germany (18%) and France (23%), especially with regard to investment in intellectual property.
• It has reduced its critical dependencies by about one third in the last eight years, mainly due to declining gas imports from Russia and an increasing diversification of energy supplies. In 2023, foreign manufacturing dependencies covered 364 products, worth about EUR 26 billion (8.7% of the manufacturing value added), with very differentiated levels of criticality between sectors and suppliers. Pharmaceuticals show a high level of import concentration, while semi-finished electronics and electrical equipment show a strong geopolitical exposure, with supply shares from China ranging between 80% and 90%. In addition, the critical imports of pharmaceuticals and electronics are almost entirely strategic and high-tech.
• It participated in the sharp decline in industrial production in 2023 (-2.0%) and 2024 (-4.0%), which brought production levels back below pre-pandemic levels, nullifying the rebound in 2021-2022. 2025 opened with an above-expected dynamic: partly due to the anticipation of exports to the United States in view of the entry into force of the duties, production showed a moderate recovery in the first half of the year (+0.5% in Q1, +0.2% in Q2), but returned to decline in Q3 (-0.5%).

The competitiveness of Italian manufacturing

• Low productivity dynamics is one of the main structural weaknesses of Italian manufacturing. Over the last thirty years, although showing a better trend than in services and the economy as a whole, labour productivity per hour worked has recorded a cumulative growth rate (+26%) significantly lower than that of the main European manufactures: about one-third compared to that recorded in France and Germany, less than half compared to that in Spain. The largest portion of this gap arose between 1995 and 2014, mainly due to a negative contribution of total factor productivity.
• Between 2015 and 2019, Italian manufacturing productivity growth instead showed signs of convergence with European competitors, thanks in part to the more favourable contribution of intangible capital and a finally positive contribution of total factor productivity. Subsequent crises, first the health crisis and then the energy crisis, have made both the signs of convergence and their causes less clear, and the dynamics of productivity in Italy has lost ground again. In particular, the energy shock hit Italy more severely than other European countries, leading to a more marked increase in the incidence of energy costs on total production costs - an incidence that was already relatively high before the crisis. Especially in energy-intensive sectors, rising energy costs risk reducing incentives to invest, both through a supply-side effect (higher marginal costs raise the profitability threshold of investments) and a demand-side effect (the inflation-induced drop in demand tends to squeeze investments), with potentially longer-lasting implications on productivity dynamics. Finally, in the two-year period 2023-2024, Italian manufacturing, in the face of a marked drop in industrial production, was characterised by a particularly large labour hoarding phenomenon, which 'mechanically' led to a drop in labour productivity.
• Over the past decade, productivity growth has been driven largely by positive changes in the productivity of manufacturing sectors (within sectors). This contribution reflects both an increase in average firm productivity and a more efficient reallocation of resources between firms within individual sectors. Although widespread, the improvement was more pronounced among firms at the upper end of the productivity distribution, widening the gap between firms at the frontier and the rest of the production fabric. The contribution from the reallocation of resources between different manufacturing sectors (between sectors) appears limited and suggests the absence of structural changes in the sectoral composition relevant for aggregate manufacturing productivity dynamics. Regardless of sign and relative importance, the observed contributions remain modest in absolute terms overall. It follows that, in order to strengthen the dynamics of productivity in a lasting way, it is necessary to act contextually on several levers: to support the innovation and efficiency of frontier enterprises, to promote the diffusion of best management and technological practices among the less productive realities, favouring their dimensional growth, and to facilitate a more effective reallocation of resources towards enterprises and sectors with greater potential.
• Between 2015 and 2024, Italy's manufacturing exports grew by an average of 2.4% per year, a pace significantly higher than that of France (+0.8%) and Germany (+1.1%) and in line with Spain. This performance indicates a strengthening of the 'revealed' competitiveness of Italian industry, which has gained shares in international markets compared to the main European countries. The improvement in competitiveness in foreign markets is mainly attributable to widespread quality gains in Italian manufactured goods, particularly evident in pharmaceuticals, transport equipment and food and beverages. Favourable production price dynamics, supported by the containment of unit labour costs, and a positive contribution of labour productivity in several sectors, further strengthened this strong growth trajectory.

Thematic Insights

• "The value of skills, flexibility and inclusion'. The ability of Italian industry to grow and compete in international markets in the coming decades will increasingly depend on the functioning of its labour market. To address the challenges posed by demographic decline and technological transformation, the economic policy strategy will have to move along integrated lines aimed at: i) broadening the employment base, investing in social infrastructures such as crèches and care services to foster female and youth employment; ii) strengthening productivity, promoting the dissemination of good managerial practices, which are essential for the conscious adoption of digital technologies; iii) improving institutional efficiency, ensuring a regulatory framework that incentivises labour mobility and innovative investments, reducing uncertainty for businesses.
• 'The return of industrial policy'. Public intervention in the economy is now again perceived as a necessary tool to strengthen the resilience of production systems, revitalise productivity growth, promote technological innovation and accelerate the digital and green transition. Public subsidies, which are widespread among large manufacturing groups but are generally small, show strong heterogeneity across countries and sectors - with China characterised by the highest levels of support - and show a positive relationship between aid intensity and global market shares. The effectiveness of interventions depends crucially on how they are implemented: objective allocation criteria are more efficient than political discretion. It is also crucial to orient support towards products with high technological complexity and consistent with the national production structure, thus maximising the likelihood of developing a sustainable comparative advantage over time and generating positive spillover effects on growth.

Sectoral sheets

• The sectoral sheets highlight the heterogeneity that characterises Italian manufacturing, reflecting the different characteristics and competitive dynamics of the individual sectors. At the same time, some of the trends observed at aggregate level are confirmed: strong interconnection with international markets, a size structure relatively oriented towards SMEs and high productivity levels in medium and large enterprises.
• Trade associations identify the cost of energy, the price of intermediate goods and geopolitical uncertainty as the main obstacles to competitiveness, while they recognise product quality, high specialisation and established technical skills as factors of competitive advantage. The green transition emerges as an ambivalent element, capable of generating both opportunities and potential competitive pressures, depending on the sectors and the intensity of investments required.