ROME, Italy / AsiaWire.IO / – The overall outlook for Italy’s economy appears cautiously optimistic, with the Bank of Italy forecasting a 1% expansion in 2026. This latest projection, outlined in its Economic Bulletin published on October 16, shows an upward adjustment for this year. Growth is anticipated to slow down to 0.7% in 2027 and slightly increase to 0.8% in 2028. The central bank warned that elevated oil prices and a more rapid inflation rate could still pose risks to this growth trajectory.
Compared to the projections made in June, the 2026 forecast is 0.4 percentage points higher. The estimate for 2027 has been revised upward by 0.3 points, whereas the figure for 2028 has been decreased by 0.1 points. Once adjusted for working days, growth for 2026 reaches 0.9%. These forecasts are based on data available as of October 9. The 1% estimate aligns with the government’s Draft Budgetary Plan.
The bank highlighted that the impact of the Middle East conflict on Italy’s economy was less severe in the first two quarters of 2026 than initially expected. This was the main factor behind the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism saw a robust performance during the summer months. Employment is expected to keep rising over the forecast period, with the unemployment rate projected to stay close to 6% throughout the period.
Adverse scenario indicates potential for zero growth
Alongside its baseline outlook, the bank also outlined a more pessimistic scenario. A significant spike in crude oil prices combined with rising inflation could result in zero growth in 2026. Under such circumstances, Italy’s economy would contract by 0.3% in both 2027 and 2028. The bank identified the Middle East conflict as a key source of uncertainty. Prolonged tensions could lead to higher and more persistent inflation levels.
The baseline scenario assumes an average oil price of $114 per barrel in the last quarter of 2026. Gas prices are expected to be €76 per megawatt hour during that period. Both are forecasted to decline over the next two years. Market interest rates are also projected to gradually increase, affecting borrowing costs for households and businesses. In September, the European Central Bank raised its deposit rate to 2.5%.
Rising prices lead to slower consumer spending
Inflation is expected to average 3.2% this year, mainly driven by energy costs. It is forecasted to decrease to 2.4% in 2027 and to 1.7% in 2028. Core inflation, which excludes energy and food, should remain stable around 2%. Household consumption is projected to slow down in the latter half of 2026 and throughout 2027, as rising prices are expected to put pressure on real incomes during that period.
Later in the forecast horizon, spending is expected to pick up again. However, business investment is likely to slow significantly in 2028 due to increased financing costs. Exports are expected to benefit from demand in Italy’s primary markets, although their growth is anticipated to be more modest than global trade overall. The rise in global trade driven by high-tech goods related to AI—where Italian companies have limited involvement—is also considered. The bank plans to revise its projections in December as part of the Eurosystem exercise.