ROME, Italy / AsiaWire.IO / – According to updated forecasts from the Bank of Italy, the nation’s economy is expected to grow by 1% in 2026. The central bank increased its prediction for this year in its latest Economic Bulletin, published on October 16. It anticipates a slowdown to 0.7% in 2027 and an increase to 0.8% in 2028. The bank warned that rising oil prices and accelerating inflation could still threaten this growth trajectory.
The 2026 forecast is 0.4 percentage points higher than the projections made in June. Meanwhile, the estimate for 2027 was adjusted upward by 0.3 points, whereas the figure for 2028 was decreased by 0.1 points. When adjusted for working days, growth for 2026 amounts to 0.9%. These projections rely on information available as of October 9. The 1% estimate aligns with the government’s Draft Budgetary Plan.
The bank noted that Italy’s economy experienced less impact from the Middle East crisis during the first two quarters of 2026 than previously expected. This was the main factor behind the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism showed strong performance over the summer months. Employment is anticipated to continue rising throughout the forecast period, with the unemployment rate staying close to 6% during this time.
Scenario with Negative Outcomes Suggests No Growth
Alongside its baseline outlook, the bank outlined a less favorable scenario. A sudden surge in crude oil prices combined with rising inflation could result in zero growth for 2026. Under such circumstances, Italy’s economy might contract by 0.3% in both 2027 and 2028. The ongoing conflict in the Middle East is identified as a major source of uncertainty, with prolonged tensions likely leading to higher and more persistent inflation.
The baseline scenario assumes an average oil price of $114 per barrel in the last quarter of 2026 and gas prices of €76 per megawatt hour during that period. Both are expected to decline over the next two years. Meanwhile, higher market interest rates are predicted to gradually impact loans for households and businesses. The European Central Bank lifted its deposit rate to 2.5% in September.
Rising Prices to Temper Consumer Spending
Inflation is forecasted to average 3.2% this year, mainly driven by energy costs. It is expected to decrease to 2.4% in 2027 and further to 1.7% in 2028. Core inflation, which excludes energy and food, is projected to remain around 2% throughout. The bank predicts household expenditure will slow down in the latter half of 2026 and into 2027, as rising prices will likely weigh on real incomes during this period.
Later in the forecast period, household consumption is expected to recover. Business investment will likely decline markedly in 2028 due to increased borrowing costs. Exports are expected to benefit from demand in Italy’s main trading partners, although their growth rate is forecasted to be slower than global trade overall. The global trade expansion is driven by high-tech goods related to AI, in which Italian companies have limited involvement. The bank plans to update its projections in December as part of the Eurosystem exercise.