ROME, Italy / AsiaWire.IO / – According to fresh estimates from the Bank of Italy, the nation’s economy is projected to expand by 1% in 2026. The central bank increased its prediction for this year in its latest Economic Bulletin, issued on October 16. It anticipates a slowdown to 0.7% growth in 2027 and a rise to 0.8% in 2028. The bank warned that higher oil prices and more rapid inflation could still hinder the growth trajectory.
The 2026 forecast has been elevated by 0.4 percentage points compared to June’s estimates. The projection for 2027 was adjusted upward by 0.3 points, whereas the estimate for 2028 was reduced by 0.1 points. When adjusting for working days, the growth rate for 2026 reaches 0.9%. These projections are based on data available as of October 9. The 1% figure aligns with the government’s Draft Budgetary Plan.
The bank indicated that Italy’s economy in the first two quarters of 2026 was less affected by the Middle East crisis than initially expected. This was the primary reason behind the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism also showed strong performance during the summer months. Employment levels are expected to continue rising throughout the forecast period, with the unemployment rate remaining close to 6% during the same timeframe.
Downside scenario suggests stagnation at zero growth
Alongside its baseline outlook, the bank outlined a more pessimistic scenario. If crude oil prices surge sharply and inflation accelerates, growth could stagnate at zero in 2026. Under this scenario, Italy’s economy might contract by 0.3% in both 2027 and 2028. The uncertainty surrounding the Middle East conflict is identified as a key risk, with prolonged tensions likely to sustain higher inflation levels.
The baseline assumptions anticipate an average oil price of $114 per barrel in the final quarter of 2026, with gas prices at €76 per megawatt hour during the same period. Both are expected to decline over the subsequent two years. The bank also projects a gradual rise in interest rates affecting loans to businesses and households. Notably, the European Central Bank lifted its deposit rate to 2.5% in September.
Rising prices dampen household consumption
Inflation is forecasted to average 3.2% this year, predominantly driven by energy costs. It is expected to ease to 2.4% in 2027 and further decrease to 1.7% in 2028. Core inflation, excluding energy and food, should remain around 2% throughout the forecast period. The bank anticipates a slowdown in household spending during the latter half of 2026 and into 2027, as rising prices are likely to reduce real incomes during this period.
Later on, consumption is forecasted to recover, while business investments are expected to decline sharply in 2028 due to higher borrowing costs. Exports are predicted to benefit from demand in Italy’s main trading partners, though their growth is projected to lag behind global trade, which is buoyed by high-tech sectors linked to AI—an area where Italian companies have limited participation. The bank will revisit these projections in December as part of the Eurosystem assessment.