ROME, Italy / AsiaWire.IO / – The Bank of Italy anticipates that Italy’s gross domestic product will expand by 1% in 2026, surpassing its earlier forecast. The growth rate is then expected to decelerate to 0.7% in 2027 before increasing slightly to 0.8% in 2028. These projections were released in the bank’s Economic Bulletin on October 16. Additionally, the central bank cautioned that a renewed surge in crude oil prices could eliminate this year’s growth gains.
The 2026 forecast was revised upward by 0.4 percentage points from the projections issued in June. The outlook for 2027 was increased by 0.3 points, whereas the estimate for 2028 was decreased by 0.1 points. In the June report, the bank had projected growth of 0.5% in 2026 and 0.4% in 2027. These updated figures are based on data available up to October 9. When adjusted for working days, the growth rate for 2026 reaches 0.9%.
The upward revision mainly reflects a less severe impact from the Middle East crisis during the first half of the year than initially expected in June. Contributions from investments related to digital and energy transitions also bolstered economic activity. Summer tourism was notably strong, further supporting growth. The 1% forecast for 2026 aligns with the estimate outlined in the government’s Draft Budgetary Plan. Employment is anticipated to continue rising, with unemployment remaining near 6%.
Oil Price Spike Could Lead Italy into Contraction
The central bank issued a warning that economic uncertainty persists at elevated levels. A significant increase in crude oil prices, combined with accelerating inflation, might result in zero growth this year. Under such a negative scenario, Italy’s economy could contract by 0.3% in both 2027 and 2028. The bank highlighted the conflict in the Middle East as a key source of uncertainty for the outlook. Energy prices continue to pose the primary risk channel for Italy’s economy.
The baseline scenario assumes that oil prices will average $114 per barrel in the fourth quarter of 2026. Natural gas prices are assumed to be €76 per megawatt hour during the same period. Both are expected to decline over the subsequent years. The bank also expects the rise in market interest rates to gradually influence borrowing costs for households and companies. The European Central Bank raised its key interest rates in September.
Inflation to Ease by 2028, According to Projections
Consumer inflation is forecasted to average 3.2% in 2026, mainly driven by energy costs. The bank predicts it will slow down to 2.4% in 2027 and further decrease to 1.7% in 2028. Core inflation is expected to remain around 2% throughout the forecast period. Household consumption is projected to weaken during the second half of 2026 and into 2027, as rising prices erode real incomes during this interval.
Nevertheless, consumption is expected to regain momentum towards the end of the forecast horizon. Investment growth will likely decline significantly in 2028 due to increasing financing costs. Exports are expected to benefit from demand in Italy’s primary markets, although their growth is projected to lag behind global trade, which is increasingly driven by high-tech sectors such as AI products. The bank also noted that Italy’s engagement in this segment remains limited.