ROME, Italy / AsiaWire.IO / – The Bank of Italy has released new forecasts suggesting the Italian economy will grow by 1% in 2026. This projection marks an upward revision from previous estimates, as detailed in its latest Economic Bulletin published on October 16. The bank anticipates growth slowing to 0.7% in 2027 and reaching 0.8% in 2028. However, it warned that factors such as rising oil prices and accelerating inflation could still disrupt this expansion.
The 2026 growth forecast is 0.4 percentage points higher than what was projected in June. Meanwhile, the estimate for 2027 has been increased by 0.3 points, whereas the 2028 figure has been lowered by 0.1 points. Adjusted for working days, the growth for 2026 amounts to 0.9%. The projections incorporate data available as of October 9. This 1% estimate aligns with the government’s Draft Budgetary Plan.
The bank pointed out that Italy’s economy was less affected by the Middle East crisis than initially expected during the first two quarters of 2026. This was a primary reason for the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism experienced a strong summer season, supporting the outlook. Employment is expected to continue expanding over the forecast period, with the unemployment rate remaining close to 6% throughout.
Scenario with adverse conditions indicates no growth
Alongside its baseline scenario, the bank outlined a less optimistic one. A sudden surge in crude oil prices coupled with rising inflation could result in zero growth for 2026. Under this scenario, Italy’s economy would contract by 0.3% in 2027 and again by the same amount in 2028. The Middle East conflict remains a key source of uncertainty, with prolonged tensions likely to sustain higher inflation rates over time.
The baseline assumptions anticipate an average oil price of $114 per barrel in the last quarter of 2026, with gas prices at €76 per megawatt hour during that period. Both are expected to decline over the following two years. Market interest rates are projected to gradually increase, affecting loans to businesses and households. The European Central Bank raised its deposit rate to 2.5% in September.
Rising prices lead to reduced consumer spending
Inflation is forecasted to average 3.2% in 2023, mainly driven by energy costs. It 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% during the same period. The bank predicts household consumption will slow down in the latter half of 2026 and throughout 2027, as rising prices impact real incomes.
Consumer spending is projected to pick up again later in the forecast period. Meanwhile, business investments are expected to slow significantly in 2028 due to higher borrowing costs. Exports are likely to benefit from demand in Italy’s primary markets but are expected to grow at a slower pace than global trade. Since high-tech goods related to AI are fueling global trade, and Italian firms have limited participation, this may restrict export growth. The bank plans to update its forecasts in December as part of the Eurosystem exercise.