ROME, Italy / AsiaWire.IO / – Amid ongoing global economic developments, Bank of Italy has revised its forecast for the country’s gross domestic product (GDP), now anticipating a 1% expansion in 2026, exceeding previous projections. The growth rate is expected to slow to 0.7% in 2027 before slightly rising to 0.8% in 2028. These figures were disclosed in the bank’s Economic Bulletin published on October 16, and it also issued a caution that a renewed increase in crude oil prices could negate this year’s growth gains.
Compared to the projections released in June, the 2026 forecast has been lifted by 0.4 percentage points. Meanwhile, the outlook for 2027 has seen an upward revision of 0.3 points, whereas the estimate for 2028 was decreased by 0.1 points. The original June forecast anticipated 0.5% growth in 2026 and 0.4% in 2027. The updated projections are based on data available up to October 9. When adjusted for working days, the growth estimate for 2026 stands at 0.9%.
The central bank attributes the upward revision primarily to a less severe impact from the Middle East crisis during the first half of the year than previously expected in June. Additionally, investments related to digital and energy transitions have bolstered economic activity. Strong summer tourism also contributed positively to growth. The 1% forecast aligns with the estimate presented in the government’s Draft Budgetary Plan. Employment levels are projected to continue rising, with unemployment remaining near 6%.
Potential oil price shock could cause contraction in Italy
The Bank of Italy issued a warning that uncertainty surrounding the economy remains high. A significant increase in crude oil prices combined with rising inflation could result in zero growth this year. Under such a scenario, the economy could shrink by 0.3% in both 2027 and 2028. The bank pointed to the conflict in the Middle East as a key source of ambiguity for the economic outlook. Energy prices continue to be the primary risk factor impacting Italy’s economic stability.
The baseline scenario assumes an average oil price of $114 per barrel in the fourth quarter of 2026, with natural gas prices at €76 per megawatt hour during the same period. Both are forecasted to decline over the remaining years of the forecast horizon. The bank also expects that rising market interest rates will gradually influence borrowing costs for households and firms. Notably, the European Central Bank raised its key interest rates in September.
Inflation trend expected to decline by 2028
According to the bank, consumer inflation is projected to average 3.2% in 2026, primarily driven by energy costs. The rate is expected to slow down to 2.4% in 2027 and 1.7% in 2028. Core inflation is forecasted to remain around 2% throughout the period. Household consumption is anticipated to weaken in the latter half of 2026 and into 2027, with higher prices eroding real incomes during this time.
The bank predicts that consumer spending will regain momentum towards the end of the forecast period. Meanwhile, investment is likely to decelerate considerably in 2028 due to rising financing costs. Exports are expected to benefit from demand in Italy’s key markets, although their growth will still lag behind global trade, which is being propelled by high-tech sectors like AI products. The bank noted that Italy’s involvement in this segment remains limited.