After a 12% surge in 2022, Italy’s construction industry experienced a challenging landscape in 2023 as early forecasts correctly predicted a stagnation in output. The primary reason is attributed to a contraction in the residential building segment, which is fueled by high inflation and weakened household purchasing power. The Italian construction sector experienced a boost in 2022 that was propelled by the government’s superbonus scheme, which offered homeowners a generous 110% tax deduction for energy-saving home improvements. However, the reduction of this tax incentive to 90% in 2023 has impacted the residential building sector. The surge in energetic renovations has triggered significant price hikes for solar plants, boilers and window frames. Despite the challenges in residential construction, civil engineering activities remain a bright spot. Investments in infrastructure, energy security and power grids, funded by the EU's Recovery and Resilience Facility (RRF), continue to drive this segment forward. Although 2022 saw delays in projects, the expectation is for a momentum boost in 2023. The escalating prices of energy and raw materials are exerting considerable strain on the profit margins of construction companies. While the government aimed to provide support in 2022, bureaucratic complexities have hindered approximately 70% of companies from accessing these funds. The cost adjustment measures, which have predominantly impacted public works, have left the private sector largely untouched. With an average payment period of 200-250 days, the Italian construction industry grapples with persistent challenges in payment delays. Small and medium-sized enterprises (SMEs) bear the brunt of poor payment practices by public bodies. The prognosis for 2023 was an increase in both payment delays and business insolvencies, which particularly affected those reliant on residential construction. Structural vulnerabilities, including narrow profit margins, high gearing and stringent lending conditions, continue to cast a shadow on the credit risk outlook for the sector.