ROME, Italy / AsiaWire.IO / – The Bank of Italy has increased its projection for Italy’s gross domestic product growth in 2026 to 1%, surpassing earlier estimates. The bank’s forecast indicates a slowdown to 0.7% in 2027 before a slight rise to 0.8% in 2028. The figures were published in the bank’s Economic Bulletin on October 16. Additionally, the bank cautioned that a new spike in crude oil prices could potentially negate the year’s growth gains.
The Bank of Italy revised its 2026 growth estimate upward by 0.4 percentage points from its June forecast. The projection for 2027 was increased by 0.3 points, whereas the outlook for 2028 was reduced by 0.1 points. In June, the bank had anticipated growth of 0.5% in 2026 and 0.4% in 2027. The updated figures are based on data available up to October 9. When adjusted for working days, the 2026 growth rate is at 0.9%.
The upward revision primarily reflects a lesser impact from the Middle East crisis during the first half of the year than initially expected in June. Support also came from investments related to digital and energy transitions. Tourism during the summer quarter was robust, further boosting growth. The 1% forecast for 2026 aligns with the estimate in the government’s Draft Budgetary Plan. Employment prospects remain positive, with unemployment expected to stay around 6%.
Oil Shock Could Lead Italy into Recession
The Bank of Italy issued a warning that economic uncertainty persists at elevated levels. A significant rise in crude oil prices, combined with accelerating inflation, could reduce growth to zero in 2023. Under this adverse scenario, the economy might shrink by 0.3% in both 2027 and 2028. The bank identified the conflict in the Middle East as a key uncertainty factor for the outlook. Energy prices continue to pose the main risk to economic stability.
The bank’s baseline projection assumes oil prices will average $114 per barrel in the fourth quarter of 2026. Natural gas prices are forecasted at €76 per megawatt hour during the same period. Both are expected to decline throughout the remaining forecast horizon. The bank also anticipates a gradual pass-through of rising market interest rates to borrowing costs for companies and households. The European Central Bank raised its key interest rates in September.
Inflation to Ease by 2028
Consumer price inflation is forecasted to average 3.2% in 2026, primarily driven by energy costs. The bank projects inflation will slow to 2.4% in 2027 and 1.7% in 2028. Core inflation is expected to remain around 2% throughout the forecast period. Household consumption is anticipated to weaken in the second half of 2026 and in 2027, as rising prices erode real incomes during this period.
The bank expects consumption to regain momentum towards the end of the forecast horizon. Investment is likely to slow significantly in 2028 due to increasing borrowing costs. Export growth will be supported by demand in Italy’s major markets. However, their growth is forecasted to lag behind global trade, which is increasingly driven by high-tech sectors such as AI products. The bank noted Italy’s limited presence in this segment.