ROME, Italy / AsiaWire.IO / – The Bank of Italy now projects the country’s gross domestic product will expand by 1% in 2026, an increase from earlier forecasts. Growth is expected to slow to 0.7% in 2027 before slightly rising to 0.8% in 2028. These figures were released in the bank’s October 16 edition of the Economic Bulletin. The bank also cautioned that a renewed surge in crude oil prices could eliminate this year’s growth gains.
The 2026 forecast was revised upward by 0.4 percentage points from the estimates published in June. The projection for 2027 increased by 0.3 points, while the outlook for 2028 was lowered by 0.1 points. Previously, in June, the bank anticipated growth of 0.5% for 2026 and 0.4% for 2027. The latest figures incorporate data available up to October 9. When adjusted for the number of working days, growth in 2026 is at 0.9%.
The upward revision mainly reflects a smaller-than-expected impact from the Middle East crisis during the first half of the year. Additionally, investment linked to digital and energy transitions supported economic activity, while strong summer tourism boosted growth. The 1% forecast aligns with the government’s Draft Budgetary Plan. Employment is expected to continue rising, with unemployment remaining near 6%.
Oil Shock Risks Could Lead Italy to Contraction
The bank warned that economic uncertainty remains elevated. A significant increase in crude oil prices combined with rising inflation could reduce growth to zero for 2023. In that scenario, the economy would contract by 0.3% in both 2027 and 2028. The ongoing conflict in the Middle East is identified as a major source of economic uncertainty, with energy prices representing the primary risk factor.
Assuming oil prices average $114 per barrel in Q4 2026 and natural gas at €76 per megawatt hour, both are expected to decline over the forecast horizon. The bank also anticipates a gradual pass-through of rising market interest rates to borrowing costs for households and firms, following the European Central Bank raised its key interest rates in September.
Inflation Set to Decline by 2028
Consumer price inflation is forecasted to average 3.2% in 2026, mainly driven by energy costs. The rate is expected to slow to 2.4% in 2027 and further to 1.7% in 2028. Core inflation is projected to remain around 2% throughout the period. Household consumption is expected to weaken in late 2026 and into 2027, with higher prices eroding real incomes during this time.
Towards the end of the forecast horizon, the bank predicts consumption will regain strength. Investment is likely to slow sharply in 2028 as financing costs increase. Exports will benefit from demand in Italy’s major markets, although their growth will lag behind global trade, which is driven by high-tech products like AI. The bank noted Italy’s limited participation in this high-tech segment.