The evolution of the research and innovation (R&I) system in Italy has been heavily affected by the economic crisis, the reduction in public expenditure associated to austerity programmes, and the fall of private R&D and investment efforts. Italy’s GDP has fallen in 2012 (-2.5%) and in 2013 (-1.8%); Eurostat forecasts a slight growth of GDP in 2014, but at a lower rate than the EU28 average. The share of R&D in GDP in 2012 is 1.27%, as opposed to a EU28 average of 2.06. Italy’s level continues to be far from the 1.53% share of GDP stated as the target for 2020 by Europe 2020 and by the National Research Programme (PNR). The modest improvement – the share was 1.25% in 2011 – is the result of a 0.1% increase of GERD (in nominal terms) from €19,811m in 2011 to €19,834m in 2012, combined with a fall in GDP. Total R&D (GERD) per capita in 2012 was €326.1 in Italy and €525.8 in the EU28 average. Considering total R&D expenditure for 2012, Istat estimates a 1.5% fall in real terms over the previous year. Public R&D funds for 2012, based on Istat data on budget appropriations, were €8,822m as opposed to €9,161m in 2011. Business funded R&D as a share of GDP in Italy remains about half the EU28 average. The report documents developments in Italian policies on research, universities and innovation.