ROME, Italy / AsiaWire.IO / – The Italian economy is expected to expand by 1% in 2026, based on the latest outlook from the Bank of Italy. In its most recent Economic Bulletin issued on October 16, the central bank increased its growth forecast for this year. It anticipates a slowdown to 0.7% in 2027 and a slight rise to 0.8% in 2028. The bank warned that elevated oil prices and rising inflation could still impede the growth trajectory.
This projection for 2026 is 0.4 percentage points higher than the estimates made in June. The outlook for 2027 was raised by 0.3 points, while the forecast for 2028 was reduced by 0.1 points. When adjusted for working days, the growth for 2026 amounts to 0.9%. The projections incorporate data available up to October 9. The 1% forecast aligns with the government’s Draft Budgetary Plan.
The bank noted that the Middle East crisis had less impact on Italy’s economy than initially expected during the first half of 2026. This was a primary factor behind the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism saw robust activity over the summer months, and employment is forecasted to continue its upward trend. The unemployment rate is expected to remain near 6% throughout the forecast period.
Downside scenario suggests zero growth
Alongside its baseline forecast, the bank outlined a more adverse scenario. A sudden surge in crude oil prices combined with accelerating inflation could result in zero growth in 2026. Under this scenario, Italy’s economy would contract by 0.3% in both 2027 and 2028. The bank identified the Middle East conflict as a significant source of uncertainty, noting that prolonged tensions could lead to sustained higher inflation.
The baseline assumptions project oil prices averaging $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 subsequent two years. The central bank also expects interest rates to gradually impact loans for households and businesses, with the European Central Bank lifted its deposit rate to 2.5% in September.
Rising prices temper consumer spending
Inflation is projected to average 3.2% this year, mainly driven by energy costs. The rate is expected to decline to 2.4% in 2027 and further to 1.7% in 2028. Core inflation, excluding energy and food, should stay around 2% throughout the period. The bank forecasts household expenditure will slow down in the second half of 2026 and into 2027, as rising prices erode real incomes during this time.
Spending is anticipated to pick up again later in the forecast horizon. However, business investment is expected to slow considerably in 2028 due to higher financing costs. Exports are likely to benefit from demand in Italy’s main trading partners, yet they are projected to grow at a slower pace than global trade. International trade growth is driven by high-tech goods related to AI, in which Italian firms have a limited role. The bank will revise its forecasts in December as part of the Eurosystem review.