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Manufacturing

In 2007, the manufacturing sector represented 18.9 per cent of GDP and 19.3 per cent of total employment. In 2008, manufacturing output decreased by 4.6 per cent, compared to a 2.0 per cent increase registered in 2007.

Italy has compensated for its lack of natural resources by specializing in transformational and processing industries. Italy's principal manufacturing industries include metal products, precision instruments and machinery, textiles, leather products and clothing, wood and wood products, paper and paper products, food and tobacco, chemical and pharmaceutical products and transport equipment, including motor vehicles.

The number of large manufacturing companies in Italy is relatively small in comparison to other European Union countries. The most significant include Fiat (automobiles and other transportation equipment), Pirelli (tires, cables and industrial rubber products), Finmeccanica (aeronautics, helicopters, space and defense), Barilla (food), Luxottica (glasses) and Giorgio Armani (clothing). These companies export a large share of their output and have significant market shares in their respective product markets in Europe.

Much of Italy's industrial output is produced by small and medium-sized firms, which also account for much of the economic growth over the past 20 years. These firms are active especially in light industry (including the manufacture of textiles, clothing, food, shoes and paper), where they have been innovators, and export a significant share of their production. The profit margins of large manufacturing firms, however, generally have been higher than those of their smaller counterparts. Various Government programs to support small firms provide, among other things, for loans, grants, tax allowances and support to venture capital entities.

Traditionally, investments in research and development ("R&D") activities have been very limited in Italy. Total and corporate R&D spending has continued to be proportionally lower in Italy than in other industrial countries, reflecting Italian industry's persistent difficulty in closing the technology gap with other advanced economies. Total R&D spending in Italy rose from 1.0 per cent in 1998 to 1.1 per cent in 2006. This compares to total R&D spending as a percentage of GDP in 2006 of 2.5 per cent in Germany, 2.1 per cent in France, 1.8 per cent in the EU, 2.7 per cent in the United States and 3.4 per cent in Japan.