The far-right has secured enough votes to form a majority government

MNCs should plan for heightened uncertainty and market volatility heading into 2023

While the far-right coalition fell short of accruing the number of votes needed to alter Italy’s constitution, its strong performance in the September 25 election suggests meaningful economic shifts are guaranteed almost immediately, starting with the 2023 budget. Tax changes and expanded aid to both families and targeted industries could boost B2C and B2B demand. However, these benefits will be undermined by rising borrowing costs that are expected to dampen corporate and consumer loan growth.


As expected, Italy’s far-right coalition will form the next majority government. In a remarkable transformation, the Brothers of Italy garnered 26% of the vote, up from 4% in the previous election. This signals a new and potentially unstable power dynamic between the coalition partners, with the gains by the Brothers of Italy coming at the expense of the League, which saw its share of the vote fall to 9% from 17%, while Forza Italia’s 8% showing was six percentage points lower than in 2018. Although the Democratic Party maintained its 19% share of the vote, its inability to perform better against a far-right coalition underscores its weakened position. Meanwhile, the Five Star Movement, the anti-establishment party in the previous election, saw its vote share cut by more than half to 15%. Worryingly, Italy’s significant economic and foreign policy challenges weren’t enough to persuade an increasingly disillusioned electorate to vote, with turnout just 64% compared to 73% in 2018.

Our View

Risks are mounting for Italy’s economy, and the new government provided little confidence throughout the election campaign that its policies will provide the stability necessary to revive Italy’s growth prospects. Looking ahead, there are three main developments that MNCs should be monitoring: Italian-EU relations, the 2023 budget, and coalition politics.

The far-right coalition may have moderated its approach to the EU in its manifesto, but MNCs should plan for a much more temperamental relationship between Brussels and Rome than during Mario Draghi’s premiership. Many Italian businesses have close connections with Russia and have lobbied Matteo Salvini, leader of the League party, to push for the lifting of EU sanctions. However, Giorgia Meloni, who’s expected to be appointed prime minister, has been more critical of Putin, and the coalition’s manifesto specifically cited Italy’s continued commitment to Ukraine. In our view, the primary risk for EU-Italian relations centers on the coalition’s desire to revise the use of EU recovery and resilience funds. The EU has stated this is a non-starter, which could result in the delayed disbursement of funds, with adverse economic consequences. Furthermore, the EU has already anticipated a tenser relationship with Italy, placing the country alongside Poland and Hungary in its discussion of rule-of-law disputes and the freezing of EU funds.

While there was only a slight uptick in borrowing costs following the election, this is due to the results simply confirming market expectations. However, this doesn’t mean MNCs can expect borrowing costs to stabilize, with October’s 2023 budget a considerable source of concern. Although pressed for time, we expect the coalition will seek to include many of the tax and spending initiatives outlined in its manifesto, slowing or even stalling an improvement in Italy’s deficit. This, in turn, would push up interest rates, reducing business confidence and investment.

Lastly, personal rivalries could damage the coalition over the medium term. In the lead-up to the election, Salvini declared the coalition would govern for its full five-year mandate. However, we don’t believe his interests align with this declaration. Meloni’s rise has come at Salvini’s cost, which could encourage him to adopt an uncooperative or even defiant position to boost his standing in the polls. This fractious relationship will create a more uncertain policy environment and makes it highly probable that Italy will return to the polls well before the end of the five-year term.

More broadly, MNCs should note that the success of the far right in Italy follows on the heels of a similar victory in Sweden. These political developments point to the increasing legitimization of far-right parties in Europe, with the trend likely to extend to other upcoming European elections, such as Spain in 2023, contributing to greater political and economic instability across the region.

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