The economic boom of the late 16th century began to stall throughout Europe. The first signs of hardship appeared in Italy after 1585, and famine persisted through the 1590s. New waves of plague struck northern Italy and Tuscany in 1630–31 and southern Italy, Lazio, and Genoa in 1656–57, with population losses between one-fourth and one-fifth, respectively. The large cities of Milan, Naples, and Genoa lost as much as half of their population. In addition, war in northern Europe after 1618 and in the Middle East between the Ottomans and the Iranians from 1623–39 disrupted Italy’s important export markets; war between Spanish, German, French, and Piedmontese forces moved to Italy between 1628 and 1659; and social conflicts within the Spanish states contributed to the decline of Italy relative to northwestern Europe.

Both agricultural production and urban industries entered into crisis in the decade 1611–20, reaching their low point about 1650. In the south, extensive wheat monoculture exhausted the soil and led to deforestation and soil erosion. Further, noble owners drained off profits for expenditures on urban luxuries, and indebtedness placed commercial grain farmers at greater risk as grain prices fell in the 17th century. In the north, intensive agriculture supported the numerous large cities, but overexpansion onto unproductive land, soil depletion, and the loss of credit pushed the region to the limits of what the population could support. In the cities, wool manufacturing fell by 50 percent in the 1620s and all but disappeared thereafter, although silk production held its own. Commercial and banking activities, once the fastest-growing industries, now constricted, and foreign imports braked further development at home. Italy’s early industrial lead lost to increased competition from northwestern Europe as new products at lower prices replaced the traditional ones in the Italian markets. The Italian guilds’ opposition to technological and organizational change, higher taxes, and higher labour costs prevented the adaptability required to surmount the short-term crisis, which instead turned into a long-term structural realignment. Only in Lombardy was there a successful shift to the putting-out system, which transferred urban industries to the countryside.

The economic involution reinforced the social hierarchy, favoured investment in landed property and rents over commerce and industry, and reinvigorated noble pretensions. With capital shifted from the manufacturing and service sectors to agricultural production of cash crops such as olive oil, wine, and raw silk, the number of skilled urban craftsmen and merchants decreased while that of illiterate peasants increased, and landed-noble power intensified. The church reasserted itself in every aspect of social life, from land ownership to ecclesiastical organization, from the defense of orthodoxy and the culture of the Council of Trent to the education of the ruling class. As the economic crisis deepened, middling ranks lost out, and social stratification between rich and poor rigidified.

In the political sphere, Spain’s involvement in the Thirty Years’ War (1618–48) and subsequent wars with other European powers—financed in part by taxes on its Italian possessions—drained Italy. As Spain declined, it dragged its Italian realms down with it. Revolts broke out in Palermo and Naples in 1647. In Naples a revolt of July 7 was mistakenly identified as a plebeian rebellion bearing the name of a young fishmonger, Masaniello, although he was murdered within 10 days and had actually been a tool of bourgeois elements seeking greater political power in the city. The uprising spread to the countryside, established a republic that sought French protection, and assumed the character of an open rebellion against Spain and native feudal lords. Internal dissension and the arrival of the Spanish fleet brought an end to the revolt by April 1648. The social and economic crisis deepened in Naples after the failure of the revolt and a recurrence of the plague in 1656. Lost was any hope of an alliance between the middle classes and the urban proletariat or rural masses against the landed aristocracy. Paradoxically, renewed Spanish reliance on the nobility of the robe fostered the very class that was to lead the cultural renewal that made Naples one of the intellectual centres of 18th-century Italy.