ROME, Italy / AsiaWire.IO / – In its latest forecast issued in October 2023, the Bank of Italy predicts that Italy’s gross domestic product will expand by 1% in 2026. The central bank increased its outlook for this year in its recent Economic Bulletin, published on October 16. It forecasts a slowdown to 0.7% in 2027 and a slight rise to 0.8% in 2028. The bank also warned that rising oil prices and faster inflation could still impede economic growth.
Compared to the June projections, the 2026 forecast has been raised by 0.4 percentage points. The estimate for 2027 was increased by 0.3 points, while the figure for 2028 was reduced by 0.1 points. Once adjusted for working days, the growth rate for 2026 stands at 0.9%. The forecasts rely on data available as of October 9. The 1% projection aligns with the government’s Draft Budgetary Plan.
The bank noted that the Middle East crisis impacted Italy’s economy less than anticipated during the first two quarters of 2026. This was a primary factor behind the upward revision. Additionally, investments related to digital and energy transition initiatives contributed positively. Tourism experienced a robust summer season, and employment is expected to continue its upward trend over the forecast period. Unemployment is projected to hover around 6% throughout the forecast horizon.
Downside Scenario Indicates Zero Growth
Alongside its baseline outlook, the bank outlined a more pessimistic scenario. A sudden spike in crude oil prices coupled with rising 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 highlighted the Middle East conflict as a significant source of uncertainty. Prolonged tensions could lead to higher and more sustained inflation.
The baseline forecast assumes an average oil price of $114 per barrel in the last quarter of 2026, with gas prices at €76 per megawatt hour in that period. Both are expected to decline over the following two years. Higher market interest rates are anticipated to gradually impact loans to businesses and households. The European Central Bank raised its deposit rate to 2.5% in September.
Rising Prices Lead to Slower Consumer Spending
Inflation is expected to average 3.2% this year, primarily driven by energy costs. It is forecasted to decrease to 2.4% in 2027 and to 1.7% in 2028. Core inflation, which excludes energy and food, should stay around 2% throughout the period. The bank forecasts household consumption will slow down in the latter half of 2026 and throughout 2027, as rising prices will erode real incomes during this period.
Later in the projection period, spending is expected to recover. However, business investment is forecast to decline sharply in 2028 due to increased borrowing costs. Exports are projected to benefit from demand in Italy’s main trading partners but are likely to grow at a slower rate than global trade overall. The international trade environment is being bolstered by high-tech goods associated with AI, although Italian companies currently have a limited role in this sector. The bank will review its forecasts in December as part of the Eurosystem exercise.