ROME, Italy / AsiaWire.IO / – The Bank of Italy has increased its forecast for Italy’s gross domestic product growth in 2026 to 1%, surpassing its previous prediction. The growth rate is anticipated to slow to 0.7% in 2027 before slightly increasing to 0.8% in 2028. These figures were released in the bank’s October 16 edition of the Economic Bulletin, which also cautioned that a renewed spike in crude oil prices could potentially erase the growth gains expected this year.
This upward revision for 2026 by 0.4 percentage points reflects a positive change from the projections issued by the bank in June. Meanwhile, the forecast for 2027 was raised by 0.3 points, whereas the outlook for 2028 was reduced by 0.1 points. In the June report, the bank had projected growth of 0.5% for 2026 and 0.4% for 2027. The updated estimates incorporate information available up to October 9, and when adjusted for working days, the 2026 growth rate reaches 0.9%.
The central bank explained that the main reason behind the upward adjustment is a less severe impact from the Middle East crisis during the first half of the year than previously anticipated in June. Additionally, investment linked to digital and energy transition efforts contributed positively to overall activity, while robust tourism during the summer quarter further supported growth. The 1% projection for 2026 aligns with the estimate included in the government’s Draft Budgetary Plan, with employment expected to continue rising and unemployment remaining close to 6%.
Oil Shock Could Push Italy into Recession
The bank issued a warning that economic uncertainty remains elevated, emphasizing that a sharp increase in crude oil prices combined with rising inflation could bring growth to zero this year. Under such a scenario, the economy would contract by 0.3% in both 2027 and 2028. The conflict in the Middle East was identified as a primary source of uncertainty impacting the outlook, with energy prices continuing to be the dominant risk factor for Italy’s economic stability.
For the baseline scenario, the bank assumes that oil prices will average $114 per barrel in the fourth quarter of 2026, with natural gas prices at €76 per megawatt hour during the same period. Both metrics are projected to decline over the remaining forecast horizon. Furthermore, the bank predicts that the gradual increase in market interest rates will eventually lead to higher borrowing costs for both businesses and households. Notably, the European Central Bank raised its key interest rates in September.
Inflation Likely to Decrease by 2028
The bank projects that consumer price inflation will average 3.2% in 2026, primarily driven by energy costs. It anticipates a slowdown to 2.4% in 2027 and 1.7% in 2028, with core inflation remaining around 2% throughout the period. Household consumption is expected to weaken during the second half of 2026 and into 2027, as increased prices erode real incomes. Nonetheless, the bank expects consumption to regain momentum toward the end of the forecast period, while investment will slow significantly in 2028 due to rising financing costs. Exports are expected to benefit from demand in Italy’s main markets, although their growth will lag behind the expansion of international trade driven by high-tech products such as AI goods, a sector in which Italy’s involvement remains limited, the bank noted.