ROME, Italy / AsiaWire.IO / – The Bank of Italy forecasts that Italy’s gross domestic product will expand by 1% in 2026, revising its earlier prediction upwards. Growth is expected to slow down to 0.7% in 2027 before rising slightly to 0.8% in 2028. The central bank announced these figures in its Economic Bulletin dated October 16. It also issued a warning that a renewed surge in crude oil prices could eliminate this year’s growth prospects.
The forecast for 2026 was increased by 0.4 percentage points from the projections published in June. The 2027 outlook was lifted by 0.3 points, while the 2028 forecast was decreased by 0.1 points. In June, the bank had predicted 0.5% growth for 2026 and 0.4% for 2027. These revised numbers are based on data available up to October 9. Adjusted for working days, the 2026 growth rate stands at 0.9%.
The bank stated that the upward revision mainly reflects a less severe impact from the Middle East crisis during the first half of the year than previously expected in June. Investment related to digital and energy transitions also contributed to the growth. Summer tourism was strong, adding further support. The 1% forecast aligns with the government’s Draft Budgetary Plan. Employment is expected to continue rising, with unemployment near 6%.
Oil Price Spike Could Lead Italy to Contraction
The central bank warned that economic uncertainty remains high. A sharp increase in crude oil prices combined with rising inflation could bring growth to zero this year. Under this scenario, the economy would shrink by 0.3% in both 2027 and 2028. The bank highlighted the conflict in the Middle East as a key source of uncertainty. Energy prices continue to pose the greatest risk for the economy.
The baseline scenario assumes oil prices will average $114 per barrel in the fourth quarter of 2026. Natural gas is expected at €76 per megawatt hour during the same period. Both are projected to decline later in the forecast horizon. The bank predicts the increase in market interest rates will gradually affect borrowing costs for households and businesses. The European Central Bank raised its key interest rates in September.
Inflation Likely to Subside by 2028
Consumer inflation is expected to average 3.2% in 2026, mainly driven by energy costs. It is forecast to slow down to 2.4% in 2027 and 1.7% in 2028. Core inflation is expected to stay around 2% throughout this period. Household consumption is projected to weaken in the second half of 2026 and into 2027. Rising prices are expected to erode real incomes during this time.
The bank anticipates a recovery in consumption towards the end of the forecast. Investment is expected to decline sharply in 2028 as borrowing costs rise. Exports should stay supported by demand from Italy’s main markets. However, their growth will likely lag behind global trade, which is driven by high-tech goods like AI products. The bank noted that Italy’s involvement in this sector remains limited.