ROME, Italy / AsiaWire.IO / – The Bank of Italy projects a 1% expansion for Italy’s economy in 2026. This forecast, outlined in its latest Economic Bulletin published on October 16, marks an upward adjustment from previous estimates. The bank anticipates a slowdown to 0.7% in 2027 and a slight increase to 0.8% in 2028. It also warned that rising oil prices and accelerating inflation might still hinder economic growth.
The 2026 growth forecast is 0.4 percentage points higher than the projections made in June. The estimate for 2027 has been raised by 0.3 points, while the figure for 2028 was reduced by 0.1 points. When adjusted for working days, the growth for 2026 amounts to 0.9%. The projections rely on data available as of October 9. The 1% estimate aligns with the government’s Draft Budgetary Plan.
The bank noted that the Middle East crisis impacted Italy’s economy less than initially expected during the first half of 2026. This was the primary reason for the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism experienced a robust summer season, and employment is expected to continue increasing throughout the forecast period. The unemployment rate is projected to stay near 6% across the horizon.
Downside scenario suggests no growth
Alongside its baseline forecast, the bank outlined a less optimistic scenario. A significant surge in crude oil prices paired with rising inflation could result in zero growth for 2026. In such a situation, Italy’s economy could contract by 0.3% in both 2027 and 2028. The bank highlighted the Middle East conflict as a key uncertainty. Prolonged tensions would likely lead to higher and more persistent inflation.
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 the same period. Both are expected to decline over the subsequent two years. The bank also forecasts a gradual increase in market interest rates affecting business and household loans. The European Central Bank lifted its deposit rate to 2.5% in September.
Rising prices temper consumer spending
Inflation is expected to average 3.2% this year, mainly driven by energy costs. It should decline to 2.4% in 2027 and further to 1.7% in 2028. Core inflation, excluding energy and food, is projected to stay around 2% throughout the forecast period. The bank predicts household expenditure will slow down in the latter half of 2026 and into 2027, as rising prices erode real incomes.
Later in the forecast horizon, consumption is expected to rebound. Business investment is set to decline sharply in 2028 due to higher financing costs. Export growth will benefit from demand in Italy’s main markets, though it is projected to grow more slowly than global trade. The international trade expansion is being driven by high-tech goods associated with AI, where Italian companies have a limited role. The bank plans to update its forecasts in December as part of the Eurosystem exercise.