ROME, Italy / AsiaWire.IO / – The Bank of Italy projects that the country’s gross domestic product will expand by 1% in 2026, exceeding earlier estimates. Following this, growth is expected to decrease to 0.7% in 2027 before slightly rising to 0.8% in 2028. The central bank announced these figures in its Economic Bulletin on October 16. It also cautioned that a renewed surge in crude oil prices could eliminate this year’s growth entirely.
The forecast for 2026 was increased by 0.4 percentage points from the projections published in June. The estimate for 2027 was raised by 0.3 points, whereas the outlook for 2028 was lowered by 0.1 points. In June, the bank had anticipated growth of 0.5% in 2026 and 0.4% in 2027. These updated figures are based on data available up to October 9. When adjusted for the number of working days, 2026 growth is projected at 0.9%.
The upward revision primarily reflects a smaller-than-expected impact from the Middle East crisis during the first half of the year, according to the bank. Additionally, investment related to digital and energy transition initiatives contributed to the positive outlook. Robust tourism during the summer quarter further boosted the economy. The 1% growth forecast for 2026 aligns with the estimate outlined in the government’s Draft Budgetary Plan. Employment is anticipated to continue increasing, with unemployment remaining close to 6%.
Oil Price Surge Could Push Italy into Contraction
The central bank highlighted that economic uncertainty persists at high levels. A sharp rise in crude oil prices combined with accelerating inflation could bring growth to zero this year. Under this 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 significant factor contributing to the overall uncertainty in the outlook. Energy prices continue to represent the primary risk channel for Italy’s economy.
The baseline scenario assumes an average oil price of $114 per barrel in the fourth quarter of 2026, with natural gas priced at €76 per megawatt hour during the same period. Both are expected to decline over the remaining forecast horizon. The bank also predicts that the increase in market interest rates will gradually influence borrowing costs for households and companies. The European Central Bank raised its key interest rates in September.
Inflation Expected to Subside by 2028
Consumer price inflation is projected to average 3.2% in 2026, primarily driven by energy costs. The bank anticipates a slowdown to 2.4% in 2027 and 1.7% in 2028. Core inflation is forecasted to remain around 2% throughout the period. Household spending is expected to weaken in the latter half of 2026 and into 2027, as rising prices erode real incomes during this period.
The bank believes that consumption will pick up again toward the end of the forecast period. Investment is expected to decrease significantly in 2028 due to increasing financing costs. Exports will benefit from demand in Italy’s main trading partners, though their growth is forecasted to lag behind global trade, which is driven by high-tech sectors like AI products. The bank also noted Italy’s limited participation in this high-tech segment.