ROME, Italy / AsiaWire.IO / – The Bank of Italy anticipates that Italy’s gross domestic product will expand by 1% in 2026, surpassing its previous forecast. The growth rate is then expected to slow to 0.7% in 2027 before slightly increasing to 0.8% in 2028. The central bank announced these figures in its Economic Bulletin on October 16, and cautioned that a new spike in crude oil prices could nullify this year’s growth.
The 2026 forecast was increased by 0.4 percentage points from the projections issued in June. Meanwhile, the estimate for 2027 was raised by 0.3 points, whereas the outlook for 2028 was reduced by 0.1 points. In June, the bank had projected growth of 0.5% for 2026 and 0.4% for 2027. These revised figures are based on data available up to October 9. When adjusting for the number of working days, the growth projection for 2026 is 0.9%.
The bank explained that the upward revision mainly results from a smaller-than-expected impact of the Middle East crisis during the first half of the year. Contributions from investments related to digital and energy transitions also bolstered economic activity. Additionally, robust tourism during the summer quarter supported growth. The 1% forecast for 2026 aligns with the estimate in the government’s Draft Budgetary Plan. Employment is forecast to continue rising, with unemployment remaining near 6%.
Oil price shocks could trigger Italy’s economic contraction
The central bank issued a warning that economic uncertainty persists at elevated levels. A sharp increase in crude oil prices, combined with rising inflation, could bring growth for 2023 down to zero. Under this adverse scenario, the economy might contract by 0.3% in both 2027 and 2028. The bank identified the conflict in the Middle East as a significant source of uncertainty for future prospects. Energy prices continue to pose the primary risk to the economy.
The baseline scenario assumes that oil prices will average $114 per barrel in the fourth quarter of 2026. Natural gas prices are assumed to be €76 per megawatt hour during the same period. Both are expected to decline over the remaining forecast horizon. The bank anticipates that increases in market interest rates will gradually influence borrowing costs for households and businesses. The European Central Bank raised its key interest rates in September.
Inflation Is Predicted to Diminish by 2028
Consumer price inflation is expected to average 3.2% in 2026, primarily driven by energy costs. The bank forecasts inflation will slow to 2.4% in 2027 and 1.7% in 2028. Core inflation is projected to stay steady at around 2% throughout the period. Household consumption is set to weaken in the latter half of 2026 and into 2027, as higher prices erode real incomes during this timeframe.
The bank believes that consumption will recover toward the end of the forecast period. Investment is expected to decline sharply in 2028 due to rising financing costs. Exports will benefit from demand in Italy’s primary markets, though growth in these markets is forecast to lag behind global trade, which is increasingly driven by high-tech products such as AI. The bank also noted that Italy’s role in this high-tech segment remains limited.