The Impact of the War in Ukraine on the Italian Economy
The impact of the ongoing war in Ukraine unleashed by the Russian invasion in February 2022 was bound to affect the integrated and mutually reliant economies of Europe and the world.
While the center-right coalition government was equivocal in its denunciations of the Russian invasion, Prime Minister Giorgia Meloni and her new government have been very clear about their unreserved support for Ukraine and NATO. This support manifests in bold sanctions on Russia, which have had a deleterious effect on the Italian economy, which was already reeling from the economic repercussions of COVID-19 and drought. The resilience of the Italian economy in the face of such overwhelming odds is in question.
While Russia accounted for only 1.6 percent of Italy’s overall exports in 2021, in certain sectors, the proportion was significantly higher. For natural resource-poor Italy, more serious for the economy than losing Russia as an export market is the country’s reliance on Russian fossil fuels, which account for 43% of Italian natural gas imports (OECD 2022). High costs borne by households mean there is less money in pockets, and the spike in gas prices affects the whole manufacturing and supply chain, making consumer goods more expensive.
Energy-intensive heavy industries like ceramics factories, steel foundries, and paper mills are the backbone of Italy’s manufacturing economy and have been particularly badly hit. In a country that subsists on wheat-based products, particularly serious are soaring grain costs caused by blocked Ukrainian wheat exports and shocks to domestic agriculture caused by fuel prices and last year’s severe drought (a drought slated to continue this year). Generally, price shocks can be passed on to consumers (including through broader inflation). However, these industries will feel the impact immediately and may struggle to pass on the full inflationary impact.
Rampant inflation and infamously stagnant salaries are putting the squeeze on most Italian families, while manufacturers are at their wit’s end trying to make ends meet in the face of out-of-control fuel prices.
As a case in point, the steel mills in San Giorgio di Nogaro on the Adriatic Sea that employ over 1,500 people will soon run out of stocks of metal slabs with little chance of new shipments from traditional suppliers in Mariupol, Ukraine. Equally badly affected is the car industry. Magneti Marelli Automotive Lighting in Tolmezzo near Udine has been forced to lay off 800 of their 930 workers due to production halts caused by Ukrainian wiring no longer being available. On the other side of the equation, orders from Russia have completely stopped for the centuries-old goldsmith district of Arezzo in Tuscany after the price of gold skyrocketed.
On a human level, not many people are aware that in 2021, Ukrainian nationals made up Italy's fifth-largest foreign community (around 236 000 people). Since the outbreak of the war, tens of thousands of people have fled to Italy, and many more will seek refuge in the coming months. According to UN figures, as of November 2022, Italy had taken in more than 171,000 Ukrainians since the Russian invasion.
In a recent meeting in Rome, the Italian Prime Minister speaking in front of hundreds of representatives of Italian companies affected by the conflict in Ukraine openly supported Ukraine’s entry into the European Union as a way for Italian companies to better respond to the war and its impact on the Italian economy. According to Meloni:
The smartest way to thank Ukrainians for what they are doing is to accelerate their chance of being part of the European institutions. We need to acknowledge Kyiv’s enormous efforts to reform its system and bring it closer to targets required by the EU Commission.
The effects of this war on Italy have been more felt at every level. Still recovering from the economic damage of the Covid pandemic, the war in Ukraine has wreaked havoc on the Italian economy and caused Italian living standards to suffer. Not only is the Italian GDP expected to take a hit in 2023, but inflation will economically cripple many Italians. Italian businesses and consumers are desperate for hostilities to cease. While our struggles can in no way compare to those of the Ukrainian people on the ground, on the financial level, and thanks to unwavering Italian solidarity with Ukraine and its refugees, their war is our war too.
Cover image: Italian Prime Minister Giorgia Meloni during her visit to the towns of Bucha and Irpin near Kyiv