Italy's underdeveloped southern regions, which have long hindered the national economy, are finally beginning to catch up with the wealthier north, according to Bank of Italy Governor Fabio Panetta.

In a speech delivered in the Sicilian city of Catania on Thursday, Panetta noted that over recent decades, per capita gross domestic product in the south has been just over half that of the rest of the country.

That said, since the pandemic, the economy of the “Mezzogiorno” has rebounded more quickly than the national average, with stronger employment growth. 

Between 2019 and 2023, GDP in the south increased by 3.7%, compared to 3.3% in the centre-north, Panetta reported. Exports also rose by 13% in the south, versus 9% in the north, and employment grew by 3.5%, compared to just 1.5% in the north, Reuters reports.

“According to our latest indicators, the south's economic expansion has continued in the first six months of this year,” the central bank head said.

Panetta warned that the recent improvements might be partly driven by temporary factors linked to post-COVID economic stimulus and welfare measures that have disproportionately targeted the south.

However, he also noted that structural factors appear to be contributing to this positive trend.

He noted evidence of “processes of restructuring and consolidation of production ... that have expelled from the market weak, less efficient and typically smaller companies.”

To capitalise on these positive developments, Panetta said that southern regions must enhance their output capacity through “investments and reforms, not welfare policies.”

He highlighted the urgent need for investment to improve the south's road, rail, and port infrastructures, as well as to address ongoing water shortages.

Panetta also stated that Italy's south could take advantage of recent geopolitical crises, which have made businesses more cautious about their production locations.

“Our southern regions guarantee conditions of geopolitical and economic stability, thanks in part to Italy's membership of the European Union and the eurozone,” he said.

In addition, the Mezzogiorno is strategically located “at the crossroads of the Mediterranean Sea,” where a fifth of the world's maritime traffic passes through, he went on to say.