Italy’s budget deficit narrowed in 2025 but remained above the European Union’s 3% ceiling, according to new data from ISTAT. This complicates Rome’s hopes of exiting the bloc’s disciplinary procedure ahead of schedule.
The national statistics bureau said the 2025 deficit came in at 3.1% of gross domestic product (GDP). This is down from 3.4% in 2024 but slightly above the EU’s 3% threshold. As recently as last week, Prime Minister Giorgia Meloni told Bloomberg she expected the deficit to fall “below 3%” this year.
Economy Minister Giancarlo Giorgetti attributed the weaker-than-expected result to ongoing costs linked to generous home-renovation incentives introduced in 2020. The schemes, designed to stimulate the construction sector during the pandemic, continue to weigh heavily on public finances. Giorgetti did not rule out revisions to the data. ISTAT said the figures could be reviewed by April 21 if additional information emerges.
Stalled exit from EU procedure
The 3% mark is politically significant because meeting it could have allowed Italy to exit the EU’s Excessive Deficit Procedure (EDP) later this year, potentially a year earlier than planned. Remaining under the EDP limits Rome’s fiscal flexibility as Meloni prepares for a 2027 general election.
Public debt also missed the government’s target. ISTAT reported that debt rose to 137.1% of GDP in 2025, up from 134.7% the previous year. Italy’s debt burden is the second highest in the euro zone after Greece. The government had aimed for a ratio of 136.2% and has projected 137.4% for 2026.
Leaving the EDP was central to Italy’s plan to increase defence spending in line with commitments made to EU partners and NATO allies. Rome has indicated that, once outside the procedure, it would make use of an EU “escape clause” allowing higher military expenditure without triggering further disciplinary action, even if the deficit temporarily exceeded 3%.
In its latest budget framework, unveiled in September, the government targeted a 2026 deficit of 2.8% of GDP. The document envisages additional defence spending of around 0.5% of GDP, or more than €10 billion, over three years through 2028.
Growth remains subdued
Italy’s economy expanded by 0.5% in real terms in 2025, matching the government’s downwardly revised forecast and marking a fourth consecutive year of sub-1% growth. At current prices, GDP rose by 2.5% to €2.26 trillion.
Gross fixed capital formation increased by 3.5% in volume terms, while final consumption expenditure rose 0.9% and exports 1.2%. Imports climbed 3.6%, meaning trade flows exerted a negative effect on overall growth. National demand, excluding inventory changes, contributed 1.5 percentage points to GDP growth, while net exports subtracted 0.7 points and inventories a further 0.2 points.
Sectoral data showed value added rising 2.4% in construction and 0.3% in industry and services, while agriculture, forestry and fishing contracted by 0.1%.
The primary balance, net borrowing excluding interest payments, improved to a surplus of 0.7% of GDP, compared with 0.5% in 2024, indicating some progress in underlying fiscal consolidation.
Tax burden rises
The politically sensitive tax burden, which measures total taxes and social contributions as a share of GDP, increased for a second consecutive year to 43.1%. That was 0.7 percentage points higher than in 2024 and above the government’s 42.8% forecast.
Opposition parties have already seized on the data, arguing that the rise undermines Meloni’s pledge to reduce taxes. The government maintains that fiscal discipline remains a priority but insists that growth and structural reforms, alongside effective use of EU recovery funds, are essential to improving the long-term outlook.
ISTAT said its release was based on data available as of February 27, leaving open the possibility of further revisions in the coming weeks.
