ROME, Italy / AsiaWire.IO / – The Bank of Italy anticipates Italy’s gross domestic product will expand by 1% in 2026, upgrading its previous forecast. The central bank’s Economic Bulletin, released on October 16, states that growth is expected to decelerate to 0.7% in 2027 before slightly rising to 0.8% in 2028. The report also highlighted concerns that a new spike in crude oil prices could negate this year’s growth.
This 2026 projection was increased by 0.4 percentage points from the estimates published in June. The outlook for 2027 was adjusted upward by 0.3 points, whereas the forecast for 2028 was reduced by 0.1 points. In the June forecast, the bank predicted growth of 0.5% for 2026 and 0.4% for 2027. The updated figures are based on data available up to October 9. When adjusted for working days, the 2026 growth rate stands at 0.9%.
The bank explained that the upward revision mainly reflects a lesser-than-expected impact from the Middle East crisis during the first half of the year. Additional support came from investments linked to digital and energy transitions, while robust summer tourism also contributed to the positive outlook. The 1% growth estimate for 2026 aligns with the government’s Draft Budgetary Plan. Employment is forecasted to continue rising, with unemployment remaining near 6%.
Oil Price Surge Could Push Italy into Recession
The central bank cautioned that economic uncertainty remains elevated. A sharp increase in crude oil prices, combined with rising inflation, could reduce growth to zero this year. In such a scenario, the economy would shrink by 0.3% in both 2027 and 2028. The bank identified the conflict in the Middle East as a significant source of uncertainty for the economic outlook. Energy prices continue to represent the primary risk factor for Italy’s economy.
The baseline scenario assumes an average oil price of $114 per barrel in the fourth quarter of 2026. Natural gas prices are expected to be €76 per megawatt hour during the same period. Both are projected to decline over the subsequent years. The bank anticipates that rising market interest rates will gradually increase borrowing costs for firms and households. Notably, the European Central Bank raised its key interest rates in September.
Inflation Trends to Ease by 2028
Consumer price inflation is projected to average 3.2% in 2026, primarily driven by energy costs. The forecast indicates a slowdown to 2.4% in 2027 and 1.7% in 2028. Core inflation is expected to remain steady at about 2% throughout the period. Household consumption is likely to weaken during the second half of 2026 and into 2027, with rising prices eroding real incomes during this period.
The bank predicts a recovery in consumption toward the end of the forecast horizon. Investment is expected to decrease notably in 2028 as borrowing costs increase. Exports will benefit from demand in Italy’s primary markets, although their growth will lag behind global trade, which is driven by high-tech products like AI goods. Italy’s engagement in this high-tech segment remains limited, the bank noted.