The Italian government's budget deficit for 2025 has been confirmed at 3.1% of the country's Gross Domestic Product (GDP), slightly above the 3% threshold set by European Union fiscal rules. This figure represents a minor improvement from 2024, when the deficit stood at 3.4%. Despite this progress, Italy remains under the European Union's excessive deficit procedure due to its failure to meet the required threshold.
The Italian government, led by Prime Minister Giorgia Meloni, had initially hoped that final data would allow for a revision of the deficit downward to 3% or slightly below. However, this was not achieved, with the deficit remaining 0.1 percentage points above the EU threshold. The government's economic minister, Giancarlo Giorgetti, had mentioned in July the possibility of revising the figures downward, citing a reassessment of certain tax expenditures related to home renovation credits.
Italy's public debt remains a significant concern, standing at 137.1% of GDP in 2025, according to the Italian National Institute of Statistics. This places Italy among the countries with the highest debt-to-GDP ratios in the eurozone, behind Greece. The high debt level limits the government's fiscal maneuverability, particularly as it seeks to finance priorities such as investment and defense.
The Italian government aims to reduce the deficit to 2.8% of GDP in 2026. The European Commission forecasts a deficit of 2.9% of GDP for 2026 and 2027, based on its spring projections. This anticipated improvement is largely due to a gradual decrease in the cost of fiscal devices related to real estate renovation, while tax revenues are expected to continue growing.
Despite these projections, Italy's economic growth remains moderate. The European Commission predicts a 0.5% increase in real GDP for 2026, following a similar growth rate in 2025. This moderate growth trajectory underscores the challenges facing Italy's fiscal policy and the need for careful management of public finances.
The European Union's excessive deficit procedure against Italy restricts its fiscal flexibility, which is crucial for addressing spending priorities such as defense and responding to the economic consequences of the energy and geopolitical crises. Italy's government has argued for greater flexibility under EU fiscal rules, but the deficit's persistence above the 3% threshold means its financial trajectory remains under enhanced scrutiny from Brussels.
Moving forward, Italy's objective is to consolidate the reduction in its deficit in 2026 and demonstrate that the 2025 overshoot was a temporary deviation rather than a sustained trend in public finances. The country's budgetary challenges and high debt levels will likely continue to be a focus for both domestic policy and European fiscal oversight.
Key points
- Italy's 2025 budget deficit stands at 3.1% of GDP, above the EU's 3% threshold.
- The country's public debt is among the highest in the eurozone, at 137.1% of GDP.
- Italy aims to reduce its deficit to 2.8% of GDP in 2026, according to government projections.
