ROME, Italy / AsiaWire.IO / – According to the latest forecast from the Bank of Italy, the country’s gross domestic product is expected to grow by 1% in 2026. The central bank’s recent Economic Bulletin, published on October 16, increased its growth outlook for this year. It now anticipates a slowdown to 0.7% in 2027 and a slight increase to 0.8% in 2028. The bank also warned that rising oil prices and a faster inflation rate could still threaten this growth trajectory.
The 2026 forecast is 0.4 percentage points higher than the predictions made in June. The estimate for 2027 was adjusted upward by 0.3 points, whereas the projection for 2028 was decreased by 0.1 points. When adjusted for working days, growth in 2026 reaches 0.9%. These projections are based on data available as of October 9. The 1% forecast aligns with the government’s Draft Budgetary Plan.
The bank noted that Italy’s economy was less affected by the Middle East crisis during the first half of 2026 than initially expected, which was a primary factor behind the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism saw a strong summer season, and employment is forecasted to continue its upward trend. The unemployment rate is expected to stay near 6% throughout the projection period.
Downside scenario indicates no growth
Alongside its baseline outlook, the bank considered a less optimistic scenario. Under this scenario, a sharp rise in crude oil prices coupled with accelerating inflation could lead to zero growth in 2026. Should this occur, Italy’s economy might contract by 0.3% in 2027 and again by 0.3% in 2028. The ongoing Middle East conflict remains a significant source of uncertainty, with prolonged tensions likely to cause higher and more persistent inflation.
The baseline assumptions include an average oil price of $114 per barrel in the final quarter of 2026 and gas prices at €76 per megawatt hour during the same period. Both are expected to decline over the next two years. Additionally, higher interest rates are expected to gradually impact loans to businesses and households. The European Central Bank lifted its deposit rate to 2.5% in September.
Rising prices slow household consumption
Inflation is forecasted to average 3.2% this year, primarily driven by energy costs. It is expected to decrease to 2.4% in 2027 and to 1.7% in 2028. Core inflation, which excludes energy and food, should remain around 2% throughout the forecast period. The bank predicts household spending will slow down in the latter half of 2026 and throughout 2027, as rising prices will diminish real incomes during this time.
Spending is expected to pick up again later in the forecast horizon. However, business investment will likely decline sharply in 2028 due to increased borrowing costs. Exports are forecasted to benefit from demand in Italy’s primary markets, although their growth will likely lag behind global trade. Since high-tech sectors linked to AI are driving global trade, and Italian companies have limited involvement there, export growth is expected to be more modest. The bank plans to update its projections in December as part of the Eurosystem exercise.