ROME, Italy / AsiaWire.IO / – The Bank of Italy forecasts that Italy’s economy will expand by 1% in 2026. The central bank revised its outlook upward in its latest Economic Bulletin published on October 16, projecting a slowdown to 0.7% in 2027 and an increase to 0.8% in 2028. However, it warned that rising oil prices and faster inflation could still prevent growth.
The 2026 growth estimate is 0.4 percentage points above the projections made in June. The forecast for 2027 was increased by 0.3 points, whereas the estimate for 2028 was decreased by 0.1 points. When adjusted for working days, the growth for 2026 amounts to 0.9%. The projections are based on data available up to October 9. The 1% figure aligns with the government’s Draft Budgetary Plan.
According to the bank, Italy’s economy experienced less impact from the Middle East crisis than initially expected during the first two quarters of 2026. This was a primary factor behind the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism saw a robust performance during the summer months, and employment is expected to continue its upward trend over the forecast period. The unemployment rate is forecasted to stay close to 6% throughout the projection horizon.
Downside scenario indicates possible zero growth
Alongside its baseline outlook, the bank has outlined a more cautious scenario. If crude oil prices spike sharply and inflation accelerates further, growth could stagnate at 0% in 2026. Under this scenario, Italy’s GDP would contract by 0.3% in both 2027 and 2028. The bank identified the Middle East conflict as a significant source of uncertainty, with prolonged tensions likely to lead to higher and more persistent inflation.
The baseline assumptions include 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 projected to decline over the following two years. Higher market interest rates will gradually increase borrowing costs for households and businesses. In September, the European Central Bank raised its deposit rate to 2.5%.
Prices push down consumption despite some recovery
Inflation is forecasted to average 3.2% this year, mainly driven by energy costs. It is expected to decrease to 2.4% in 2027 and further to 1.7% in 2028. Core inflation, which excludes energy and food, should hover around 2% throughout the period. The bank anticipates household expenditure will slow down in the second half of 2026 and into 2027. Rising prices are likely to erode real incomes during this time.
Later in the forecast horizon, consumption is expected to pick up again. Business investments will likely decline significantly in 2028 due to higher financing costs. Exports are projected to benefit from demand in Italy’s key markets, though their growth rate will lag behind global trade expansion. International trade is buoyed by high-tech goods linked to AI, in which Italian firms have a limited role. The bank plans to revisit its forecasts in December as part of the Eurosystem review.