ROME, Italy / AsiaWire.IO / – In its October 16 Bank of Italy Economic Bulletin, the central bank announced an upgraded forecast, expecting Italy’s gross domestic product to expand by 1% in 2026, surpassing earlier predictions. The growth rate is then anticipated to slow to 0.7% in 2027 and slightly increase to 0.8% in 2028. The report highlights that a potential spike in crude oil prices could threaten to eliminate growth this year.
As of October 9, the bank’s revised projection for 2026 reflects an upward adjustment of 0.4 percentage points from the predictions published in June. The 2027 outlook increased by 0.3 points, whereas the forecast for 2028 was reduced by 0.1 points. Previously, in June, the bank anticipated growth of 0.5% for 2026 and 0.4% for 2027. These updated figures incorporate the latest available data, with an adjusted growth rate of 0.9% when accounting for the number of working days.
According to the bank, the upward revision mainly results from a smaller-than-expected impact of the Middle East crisis during the first half of the year. Investment related to digital and energy transitions also contributed to supporting economic activity. Additionally, robust tourism during the summer quarter played a role in boosting growth. The 1% projection for 2026 aligns with the estimate presented in the government’s Draft Budgetary Plan. Employment is forecasted to continue rising, with unemployment remaining near 6%.
Oil Price Shock Could Lead Italy into Contraction
The central bank cautioned that economic uncertainty persists at elevated levels. A sharp increase in crude oil prices, combined with accelerating inflation, could bring growth to zero this year. In such a scenario, the economy would contract by 0.3% in both 2027 and 2028. The bank identified the Middle East conflict as a significant source of economic uncertainty moving forward. Energy prices continue to be the primary risk factor for the economy.
The baseline scenario assumes that oil prices will average $114 per barrel in the fourth quarter of 2026, with natural gas prices at €76 per megawatt hour during the same period. Both are expected to decline over the remaining forecast horizon. The bank projects that increases in market interest rates will gradually influence borrowing costs for households and firms. The European Central Bank raised its key interest rates in September.
Inflation Expected to Decline by 2028
Looking ahead, consumer inflation is forecasted to average 3.2% in 2026, mainly driven by energy prices. The inflation rate is then expected to slow to 2.4% in 2027 and further down to 1.7% in 2028. Meanwhile, core inflation is projected to stay around 2% throughout the period. Household consumption is likely to weaken during the second half of 2026 and into 2027, as higher prices reduce real incomes.
The bank anticipates that consumption will regain momentum towards the conclusion of the forecast period. However, investment is expected to decelerate markedly in 2028 due to rising financing costs. Exports are expected to benefit from demand in Italy’s main trading partners. Still, their growth is projected to lag behind the expansion in international trade driven by high-tech goods such as AI products. The bank also noted that Italy’s participation in this sector remains limited.