The Italian economic base was sorely lacking and they did not have the industrial resources to compete at anywhere near the level that the Germans could. They had rearmed earlier than most other beligerants and had spent a great deal of money on equipment that was, by 1939, woefully out of date. Their MBTs M13/40 and M14/41, for instance, could have been classified as a light tanks, being rougly analogous to the M5 Stuart in weight. They simply could not afford to rearm "again" and in the numbers and manner needed to fight a 1940s war. Tie this into the comments made by TA and Sloniksp and you have country that more or less was preordained to come out on the losing side of any war against another western power and a good many non-western ones too, in light of their dismal showing against Selasse's partially spear-armed combatants in Abyssinia.

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Best Regards,
JW