ROME, Italy / AsiaWire.IO / – The Bank of Italy anticipates that Italy’s gross domestic product will expand by 1% in 2026, revising upward from its earlier forecast. The forecast then indicates a slowdown to 0.7% in 2027, with a slight rise to 0.8% expected in 2028. These figures were released in the bank’s Economic Bulletin on October 16, and it also cautioned that a renewed increase in crude oil prices could negate this year’s growth.
The 2026 projection was increased by 0.4 percentage points compared to the estimates published in June, while the forecast for 2027 was raised by 0.3 points. Conversely, the outlook for 2028 was reduced by 0.1 points. In June, the bank had predicted growth of 0.5% for 2026 and 0.4% for 2027. The latest data is based on information available up to October 9, and after adjusting for working days, the 2026 growth rate reaches 0.9%.
The bank explained that the upward revision primarily reflects a smaller-than-anticipated impact from the Middle East crisis during the first half of the year, supplemented by investment linked to digital and energy transitions that supported activity. Additionally, strong summer tourism contributed to the upward revision. The 1% forecast for 2026 aligns with the estimate outlined in the government’s Draft Budgetary Plan, with employment expected to continue rising and unemployment remaining near 6%.
Oil shock could push Italy into contraction
The central bank warned that economic uncertainty continues to be significant. A sharp increase in crude oil prices, combined with rising inflation, could bring growth to zero this year. Under this negative scenario, the economy might contract by 0.3% in both 2027 and 2028. The bank identified the conflict in the Middle East as a major source of uncertainty for the economic outlook, with energy prices remaining the primary risk factor for the economy.
The baseline scenario assumes an average oil price of $114 per barrel in the fourth quarter of 2026, with natural gas at €76 per megawatt hour during the same period. Both are expected to decline over the forecast horizon. The bank also expects the rise in market interest rates to gradually influence borrowing costs for households and firms. The European Central Bank raised its key interest rates in September.
Inflation likely to decrease by 2028
Consumer price inflation is forecasted to average 3.2% in 2026, mainly driven by energy costs. The bank expects this to slow to 2.4% in 2027 and 1.7% in 2028. Core inflation is projected to remain around 2% throughout the period. Household consumption is set to weaken in the second half of 2026 and into 2027, with rising prices eroding real incomes during this phase.
According to the bank, consumption should recover towards the end of the forecast period, while investment is expected to decline significantly in 2028 due to higher financing costs. Exports will benefit from demand in Italy’s key markets, although their growth is still expected to lag behind global trade, which is driven by high-tech goods such as AI products. The bank noted that Italy’s presence in this sector remains limited.