ROME, Italy / AsiaWire.IO / – The Bank of Italy has revised its forecast for the nation’s gross domestic product, now anticipating a 1% increase in 2026, surpassing previous estimates. The projection indicates a slowdown to 0.7% in 2027 before a slight rise to 0.8% in 2028. These figures were published in the bank’s Economic Bulletin on October 16, and it also issued a caution that a renewed surge in crude oil prices could negate this year’s growth gains.
The upward revision for 2026 reflects an increase of 0.4 percentage points from the projections made in June. The forecast for 2027 was raised by 0.3 points, while the outlook for 2028 was lowered by 0.1 points. In June, the bank had predicted growth of 0.5% for 2026 and 0.4% for 2027. The updated figures incorporate data available up to October 9. When adjusted for the number of working days, the growth estimate for 2026 stands at 0.9%.
The bank attributed the upward adjustment mainly to a less severe impact from the Middle East crisis during the first half of the year than initially expected. It also highlighted that investment related to digital and energy transitions contributed positively to economic activity. Additionally, robust tourism in the summer quarter further bolstered growth. The 1% projection for 2026 aligns with the estimate presented in the government’s Draft Budgetary Plan. Employment is expected to continue increasing, with unemployment near 6%.
Potential Oil Shock Risks Could Lead Italy into Recession
The Bank of Italy cautioned that high levels of economic uncertainty persist. A sharp escalation in crude oil prices combined with rising inflation could bring growth to zero this year. Under such a scenario, the economy might contract by 0.3% in both 2027 and 2028. The bank identified the ongoing conflict in the Middle East as a significant factor contributing to the uncertainty surrounding the outlook. Energy prices continue to be the primary channel of risk for Italy’s economy.
The baseline scenario assumes that oil prices will average $114 per barrel in the fourth quarter of 2026. Natural gas prices are projected at €76 per megawatt hour for the same period. Both are expected to decline over the remaining forecast horizon. The bank also anticipates a gradual pass-through of rising market interest rates to borrowing costs for businesses and households. The European Central Bank raised its key interest rates in September.
Inflation Likely to Decline by 2028
Consumer price inflation is forecasted to average 3.2% in 2026, mainly driven by energy costs. The bank expects inflation to slow to 2.4% in 2027 and 1.7% in 2028. Core inflation is projected to stay around 2% throughout the forecast period. Household consumption is expected to weaken during the second half of 2026 and into 2027, as higher prices diminish real incomes during this time.
The bank predicts a recovery in consumption towards the end of the projection horizon. Investment growth is anticipated to slow considerably in 2028 due to rising financing costs. Exports are expected to benefit from demand in Italy’s main trading partners, although their growth will lag behind global trade, which is driven by high-tech products such as AI technology. Italy’s participation in this high-tech segment remains limited, the bank noted.