From the 2017 A.T. Kearney Foreign Direct Investment Confidence Index®

Italy’s three-spot rise to 13th ties for the second-largest positive gain in this year’s Index. This strong gain comes despite mixed macroeconomic indicators and political volatility after the country’s December 2016 referendum. The economy grew by a sluggish 0.9 percent in 2016, and the IMF projects growth of just 0.7 percent and 0.8 percent in 2017 and 2018, respectively. More positively, separate reports by the Organisation for Economic Co-operation and Development (OECD) and Italy’s National Institute for Statistics announced in February that the manufacturing sector, a major driver of the country’s economy, is showing signs of recovery, and the service sector grew at its fastest rate in 14 months. However, the general election that will likely take place this fall features the populist Five Star Movement, which has called for a referendum on euro membership that may be especially worrisome to investors a year after the Brexit vote.

The less-than-stellar macro environment in Italy suggests investors may be taking notice of the Italian government’s strong push to attract foreign investment since the end of 2015. In recent years, the Italian Trade Agency has set up a foreign investment department to support those interested in establishing a business in Italy. And several reforms were enacted in 2015 and 2016 to facilitate increased investment, including the Jobs Act, which streamlines some labor-law processes, and a reform that aims to make starting a business in Italy easier by reducing the minimum capital requirement and simplifying registration procedures. Such reforms should make Italy’s investment environment more appealing to foreign investors and could help to boost its relatively low FDI stock of just 18.6 percent of GDP.

The second-largest FDI deal in Italy in the past year was the $6.8 billion acquisition of Italcementi by Germany-based HeidelbergCement, one of the world’s largest integrated manufacturers of building materials. However, this could soon be eclipsed. In early 2017, Italy accepted bids to privatize the state-owned ILVA, Europe’s largest steelworks, which is a vital part of Italy’s manufacturing sector. And investments by US private equity firms are increasing, particularly in high-tech companies, capitalizing on the fact that Italy largely lacks a private equity market.