ROME, Italy / AsiaWire.IO / – The Bank of Italy projects that Italy’s gross domestic product will expand by 1% in 2026, revising its earlier forecast. The growth rate is expected to decelerate to 0.7% in 2027 before slightly increasing to 0.8% in 2028. The central bank revealed these projections in its Economic Bulletin published on October 16 and issued a warning that a new spike in crude oil prices could eliminate this year’s growth gains.
The revised estimate for 2026 marks an upward adjustment of 0.4 percentage points from the projections issued in June. Meanwhile, the forecast for 2027 has been raised by 0.3 points, whereas the outlook for 2028 has been lowered by 0.1 points. In its June outlook, the bank had anticipated growth of 0.5% for 2026 and 0.4% for 2027. These updated figures are based on information available up to October 9. When adjusted for working days, 2026 growth is at 0.9%.
The bank attributes this upward revision mainly to a smaller-than-expected impact of the Middle East crisis during the first half of the year. Supportive factors include increased investment related to digital and energy transition initiatives. Additionally, a robust summer tourism season contributed to the upward revision. The 1% projection for 2026 aligns with the forecast outlined in the government’s Draft Budgetary Plan. Employment figures are expected to continue rising, with unemployment remaining close to 6%.
Potential Oil Price Shock Could Drive Italy Into Recession
The Bank of Italy expressed caution, emphasizing that economic uncertainty remains elevated. A significant rise in crude oil prices combined with accelerating inflation could result in zero growth for the current year. In this adverse scenario, the economy would contract by 0.3% in both 2027 and 2028. The bank identified ongoing conflict in the Middle East as a key uncertainty factor influencing the outlook. Energy prices continue to pose the primary risk to the economy.
The baseline scenario assumes an average oil price of $114 per barrel in the fourth quarter of 2026. Natural gas prices are projected to be €76 per megawatt hour over the same period. Both are expected to decline throughout the remainder of the forecast horizon. The bank anticipates that rising market interest rates will gradually pass through to borrowing costs for households and businesses. The European Central Bank raised its key interest rates in September.
Inflation Is Expected to Decline by 2028
Consumer price inflation is forecasted to average 3.2% in 2026, mainly driven by energy costs. The bank predicts a slowdown to 2.4% in 2027 and 1.7% in 2028. Core inflation is anticipated to stay near 2% throughout the forecast period. Household consumption is expected to weaken in the latter half of 2026 and into 2027, as rising prices erode real incomes.
The bank believes household spending will regain momentum toward the end of the forecast horizon. Investment activity is projected to slow notably in 2028 due to increasing financing costs. Export growth will be supported by demand from Italy’s major trading partners, though it is expected to trail behind global trade expansion, which is driven by high-tech products like AI innovations. The bank noted Italy’s limited involvement in that segment.
}**