ROME, Italy / AsiaWire.IO / – According to the latest forecasts from the Bank of Italy, the country’s economy is expected to expand by 1% in 2026. The central bank upgraded its outlook for this year in its recent Economic Bulletin, published on October 16, indicating an anticipated slowdown to 0.7% in 2027 and a modest increase to 0.8% in 2028. The bank also noted that rising oil prices and a faster inflation rate could still pose risks that might halt this growth trajectory.
This projection for 2026 is 0.4 percentage points above the forecast made in June, with the estimate for 2027 being increased by 0.3 points while the 2028 figure was revised downward by 0.1 points. When adjusted for working days, the growth for 2026 amounts to 0.9%. These projections rely on data available as of October 9, and the 1% estimate aligns with the government’s Draft Budgetary Plan.
The bank highlighted that the impact of the Middle East crisis on Italy’s economy during the first two quarters of 2026 was less severe than initially expected, which was a primary factor behind the upward revision. Additionally, investments related to digital and energy transition initiatives contributed positively, while tourism experienced a strong summer season. Employment is predicted to continue its upward trend during the forecast period, with the unemployment rate expected to stay near 6% throughout.
Adverse Scenario Suggests Zero Growth
Alongside its baseline outlook, the bank outlined a less favorable scenario where a significant rise in crude oil prices coupled with surging inflation could result in no growth for 2026. In such an event, Italy’s economy would contract by 0.3% in 2027 and again in 2028. The bank pointed out the ongoing Middle East conflict as a major source of uncertainty, with prolonged tensions potentially leading to higher and more persistent inflation.
The baseline scenario presumes an average oil price of $114 per barrel in the last quarter of 2026, and gas prices at €76 per megawatt hour for that period. Both are expected to decline over the subsequent two years. Meanwhile, interest rates are projected to rise gradually, affecting loans for households and businesses, with the European Central Bank raising its deposit rate to 2.5% in September.
Inflation and Consumer Spending Outlook
Inflation is forecasted to average 3.2% this year, primarily driven by energy costs. The rate is expected to decrease to 2.4% in 2027 and further down to 1.7% in 2028. Core inflation, which excludes energy and food, is projected to stay around 2% during this period. The bank anticipates household expenditure to slow down in the latter half of 2026 and throughout 2027, with rising prices dampening real income growth during this time.
Later in the forecast period, consumption is expected to pick up again, though business investment is likely to decline sharply in 2028 due to increased borrowing costs. Exports should benefit from demand in Italy’s primary markets but are forecasted to grow at a slower pace than global trade, which itself is driven by high-tech goods related to AI—a sector in which Italian firms have limited participation. The bank plans to update its outlook in December as part of the Eurosystem’s assessment.