ROME, Italy / AsiaWire.IO / – According to fresh forecasts from the Bank of Italy, the country’s economy is expected to expand by 1% in 2026. The central bank adjusted its outlook upward in its latest Economic Bulletin, issued on October 16, indicating a more optimistic view for this year. It anticipates a slowdown to 0.7% in 2027 and a slight increase to 0.8% in 2028. The bank warned that rising oil prices and accelerating inflation could still impede this growth trajectory.
This forecast for 2026 is 0.4 percentage points above the June estimates. The projection for 2027 was increased by 0.3 points, while the 2028 figure was decreased by 0.1 points. When adjusted for working days, the growth for 2026 is 0.9%. These projections are based on data available as of October 9. The 1% estimate aligns with the government’s Draft Budgetary Plan.
The bank noted that Italy’s economy was less affected by the Middle East crisis than initially expected during the first two quarters of 2026. This was a key factor behind the upward revision. Additionally, investments related to digital and energy transitions contributed positively. Tourism experienced a strong summer season. Employment is expected to continue its upward trend over the forecast period, with the unemployment rate remaining near 6% throughout.
Adverse Scenario Projects Zero Growth
Alongside its baseline outlook, the bank outlined a more pessimistic scenario. If crude oil prices surge sharply and inflation accelerates, growth could stall at zero in 2026. Under such circumstances, Italy’s economy might contract by 0.3% in both 2027 and 2028. The bank identified the Middle East conflict as a significant source of uncertainty. Prolonged tensions could lead to higher and more persistent inflation.
The baseline assumes oil prices averaging $114 per barrel in the last quarter of 2026, with gas prices at €76 per megawatt hour during that period. Both are expected to decline over the subsequent two years. Market interest rates are projected to gradually increase borrowing costs for households and businesses. In September, the European Central Bank raised its deposit rate to 2.5%.
Rising Prices Reduce Consumer Spending
Inflation is forecast to average 3.2% this year, mainly driven by energy costs. It is expected to decline to 2.4% in 2027 and further to 1.7% in 2028. Core inflation, which excludes energy and food, should stay around 2% throughout the period. The bank predicts household expenditure will slow down in the second half of 2026 and into 2027, as rising prices impact real income levels during this time.
Later in the forecast horizon, consumer spending is expected to pick up once again. Business investments will likely decrease sharply in 2028 due to higher borrowing costs. Exports are forecasted to benefit from demand in Italy’s key markets, but their growth will lag behind global trade, which is driven by high-tech goods linked to AI, a sector where Italian companies play a limited role. The bank plans to revise its projections in December as part of the Eurosystem exercise.