ROME, Italy / AsiaWire.IO / – According to the Bank of Italy, the country’s economy is expected to expand by 1% in 2026. The central bank upgraded its forecast in its latest Economic Bulletin, issued on October 16, anticipating a slowdown to 0.7% in 2027 and a slight rise to 0.8% in 2028. It warned that factors such as rising oil prices and accelerated inflation could still hinder growth.
This 2026 forecast is 0.4 percentage points higher than the projections made in June. The estimate for 2027 was increased by 0.3 points, whereas the 2028 figure was reduced by 0.1 points. When adjusted for working days, growth for 2026 stands at 0.9%. These projections are based on data available up to October 9. The 1% estimate aligns with the government’s Draft Budgetary Plan.
The bank noted that the Middle East crisis had a smaller impact on Italy’s economy than expected during the first half of 2026, which was a key factor in the upward revision. Additionally, investments linked to digital and energy transitions contributed positively, and tourism experienced robust growth over the summer. Employment is forecasted to continue its upward trend, with the unemployment rate expected to stay near 6% throughout the period.
Downside scenario indicates potential stagnation
Alongside its baseline outlook, the bank outlined a less optimistic scenario. A significant rise in crude oil prices coupled with accelerating inflation could result in zero growth for 2026. Under this scenario, Italy’s GDP could contract by 0.3% in both 2027 and 2028. The bank identified ongoing tensions in the Middle East as a key source of uncertainty, warning that prolonged conflict could lead to sustained inflation.
The baseline assumes an average oil price of $114 per barrel in the final quarter of 2026, with gas prices at €76 per megawatt hour for that period. Both are expected to decline over the next two years. Additionally, rising market interest rates are anticipated to gradually impact loans for households and businesses. Notably, the European Central Bank lifted its deposit rate to 2.5% in September.
Inflation and consumer spending trends
Inflation is forecasted to average 3.2% this year, mainly driven by energy costs. It is expected to decrease to 2.4% in 2027 and further to 1.7% in 2028. Core inflation, excluding energy and food, should stay around 2% during this period. Household consumption is projected to slow in the latter half of 2026 and into 2027 due to rising prices impacting real incomes.
Later in the forecast, spending is expected to recover, while business investment will likely decline sharply in 2028 due to higher financing costs. Exports are expected to benefit from demand in Italy’s main markets but will grow at a slower pace than global trade, which is supported by high-tech goods related to AI—an area where Italian firms have limited participation. The bank plans to update its forecasts in December as part of the Eurosystem review.