ROME, Italy / AsiaWire.IO / – According to the Bank of Italy, Italy’s gross domestic product is now expected to expand by 1% in 2026, marking an upward revision from earlier forecasts. The growth rate is anticipated to slow to 0.7% in 2027 before slightly increasing to 0.8% in 2028. These projections were published in the bank’s Economic Bulletin on October 16. The central bank also issued a warning that a renewed surge in crude oil prices could negate this year’s growth gains.
The 2026 growth estimate was increased by 0.4 percentage points compared to the forecasts issued in June. The projection for 2027 was raised by 0.3 points, whereas the outlook for 2028 was lowered by 0.1 points. Previously, in June, the bank had predicted growth of 0.5% for 2026 and 0.4% for 2027. The new figures incorporate data available up to October 9. Adjusted for the number of working days, the growth rate for 2026 stands at 0.9%.
The bank explained that the upward revision largely reflects a lesser impact from the Middle East crisis in the first half of the year than initially anticipated in June. Additionally, investments related to digital and energy transitions contributed positively to economic activity. Tourism activity during the summer quarter also supported growth. The 1% forecast for 2026 aligns with the estimate outlined in the government’s Draft Budgetary Plan. Employment is projected to continue increasing, with unemployment remaining close to 6%.
Oil Price Shock Could Lead Italy Into Recession
The central bank cautioned that economic uncertainty persists at a high level. A significant increase in crude oil prices combined with rising inflation could bring growth for 2023 down to zero. In such a negative scenario, the economy might contract by 0.3% in both 2027 and 2028. The bank identified the conflict in the Middle East as a key source of uncertainty for the economic outlook. Energy prices remain the primary channel through which this risk manifests.
The baseline scenario assumes oil prices will average $114 per barrel in the fourth quarter of 2026. Natural gas prices are expected to be €76 per megawatt hour during the same period. Both are forecasted to decline over the remaining forecast horizon. The bank also expects the increase in market interest rates to gradually influence borrowing costs for firms and households. The European Central Bank raised its key interest rates in September.
Inflation Set to Decline 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 remain steady at around 2% throughout the period. Household consumption is forecasted to weaken during the latter half of 2026 and into 2027, as rising prices erode real incomes during this time.
The bank anticipates a revival in consumption toward the end of the forecast horizon. Investment is expected to decline notably in 2028 as financing costs increase. Export growth will be supported by demand from Italy’s key trading partners, although it is likely to lag behind global trade, which is increasingly driven by high-tech goods such as AI products. The bank noted that Italy’s participation in this high-tech segment remains limited.