Italy’s Recovery

Abstract

The years that immediately follow the Second World War can be seen as the final phase of a long cycle of “wartime economy”. Real GDP fell dramatically in 1945, to a level almost 40 per cent below the GDP of 1939 (the prewar peak), a level that would only be regained in 1950.1 The first signs of an increase in national output were accompanied by hyperinflation – wholesale prices skyrocketed by 140 per cent in 1945, 40 per cent in 1946 and 78.9 per cent in 1947.2 An important consequence of this jump in inflation was to greatly reduce the burden of public debt for the State.3 In a few years,

between 1945 and 1950, its ratio to nominal GDP decreased from 72.4 per cent to 22 per cent.4 The big losers in this pulverization of public sector debt were Italian savers, who had invested heavily in government securities.