ROME, Italy / AsiaWire.IO / – Bank of Italy now anticipates Italy’s gross domestic product will increase by 1% in 2026, surpassing previous predictions. The growth rate is expected to slow to 0.7% in 2027 before rising slightly to 0.8% in 2028. The latest figures were released in the bank’s Economic Bulletin on October 16. The bank also cautioned that a renewed spike in crude oil prices could negate this year’s growth.
The 2026 projection was increased by 0.4 percentage points from the forecasts made in June. The 2027 outlook was revised upward by 0.3 points, whereas the 2028 forecast was decreased by 0.1 points. In June, the bank predicted growth of 0.5% for 2026 and 0.4% for 2027. These updated figures incorporate data available until October 9. When adjusted for working days, the 2026 growth estimate reaches 0.9%.
The upward revision primarily reflects a lesser-than-expected impact from the Middle East crisis during the first half of the year compared to June’s projections. Additionally, investments related to digital and energy transitions contributed positively, along with robust summer tourism, which further supported growth. The 1% forecast aligns with the government’s Draft Budgetary Plan. Employment is expected to continue rising, with unemployment near 6%.
Oil Price Surge Risks Pushing Italy Toward Contraction
The bank warned that economic uncertainty remains elevated. A significant increase in crude oil prices combined with rising inflation could result in zero growth for 2026. Under this scenario, Italy’s economy might contract by 0.3% in both 2027 and 2028. The ongoing conflict in the Middle East is identified as a key source of uncertainty. Energy prices continue to be the primary risk factor for the economy.
The baseline scenario assumes an average oil price of $114 per barrel in late 2026. Natural gas prices are projected at €76 per megawatt hour during the same period, with both expected to decline later in the forecast horizon. The bank forecasts that rising market interest rates will gradually increase borrowing costs for households and businesses. The European Central Bank raised its key interest rates in September.
Inflation to Decline by 2028
Consumer price inflation is expected to average 3.2% in 2026, mainly driven by energy costs. The bank projects it to slow to 2.4% in 2027 and 1.7% in 2028. Core inflation is forecasted to stay around 2% throughout the period. Household spending is predicted to weaken in the second half of 2026 and into 2027, as rising prices erode real incomes.
The bank believes consumption will recover towards the end of the forecast period. Investment is likely to decline significantly in 2028 due to higher financing costs. Exports will be supported by demand from Italy’s key markets, though their growth is expected to lag behind global trade, which is driven by high-tech products such as AI. The bank noted Italy’s limited participation in this sector.