ROME, Italy / AsiaWire.IO / – According to the latest forecasts from the Bank of Italy, the country’s economy is expected to expand by 1% in 2026. The central bank updated its outlook in the recent Economic Bulletin published on October 16, raising its estimate for this year. It now predicts a slowdown to 0.7% in 2027 and a slight increase to 0.8% in 2028. The bank warned that factors such as rising oil prices and quicker inflation could still halt this growth trajectory.
The 2026 forecast is 0.4 percentage points higher than the projections made in June. The estimate for 2027 was increased by 0.3 points, whereas the figure for 2028 was decreased by 0.1 points. When adjusted for working days, the growth for 2026 amounts to 0.9%. These projections rely on data available up to October 9. The 1% forecast aligns with the government’s Draft Budgetary Plan.
The bank noted that the impact of the Middle East crisis on Italy’s economy was less severe than expected during the first two quarters of 2026. This was a primary factor behind the upward revision. Investment related to digital and energy transitions also contributed positively. Tourism showed a strong performance over the summer months. Employment is expected to continue its upward trend during the forecast period. The unemployment rate is projected to stay near 6% throughout the horizon.
Downside Scenario Indicates No Growth in 2026
Alongside its baseline forecast, the bank presented a less optimistic scenario. A sudden rise in crude oil prices coupled with accelerating inflation could result in zero growth for 2026. Under these conditions, Italy’s GDP would shrink by 0.3% in both 2027 and 2028. The bank pointed to the Middle East conflict as a significant source of uncertainty. Prolonged tensions could lead to higher and more persistent inflation.
The baseline assumes an average oil price of $114 per barrel in the last quarter of 2026. Gas prices are estimated at €76 per megawatt hour for that period. Both are expected to decline over the next two years. Market interest rates are forecasted to gradually increase, affecting loans for businesses and households. In September, the European Central Bank raised its deposit rate to 2.5%.
Rising Prices to Cool Consumer Spending
Inflation is predicted to average 3.2% in 2023, mainly driven by energy costs. It is expected to decrease to 2.4% in 2027 and further to 1.7% in 2028. Excluding energy and food, core inflation should stay around 2% throughout the period. The bank anticipates household consumption will slow down in the second half of 2026 and into 2027. Rising prices are likely to put pressure on real incomes during this time.
Consumer spending is expected to pick up again later in the forecast period. Business investment is projected to decline significantly in 2028 due to higher borrowing costs. Export growth will benefit from demand in Italy’s main trading markets. However, the bank expects exports to grow at a slower rate than global trade. The global trade expansion is fueled by high-tech products related to AI, in which Italian firms have limited involvement. The bank plans to revise its projections in December as part of the Eurosystem exercise.