ROME, Italy / AsiaWire.IO / – The Bank of Italy has upgraded its projection for the country’s gross domestic product, now expecting a 1% growth in 2026, surpassing previous estimates. The outlook indicates a slowdown to 0.7% in 2027, followed by a modest increase to 0.8% in 2028. These figures were disclosed in the bank’s Economic Bulletin published on October 16. The report also cautioned that a renewed spike in crude oil prices could eliminate this year’s growth gains.
The 2026 forecast was raised by 0.4 percentage points from the projections issued in June. Meanwhile, the estimate for 2027 was increased by 0.3 points, but the outlook for 2028 was revised downward by 0.1 points. In the June report, the bank anticipated growth of 0.5% in 2026 and 0.4% in 2027. The updated forecasts rely on data available up to October 9. When adjusted for working days, the growth rate for 2026 is 0.9%.
The upward revision mainly reflects a smaller-than-expected impact from the Middle East crisis during the first half of the year. Contributions from investment related to digital and energy transitions also played a role in boosting activity. Additionally, strong tourism during the summer quarter contributed positively to the growth outlook. The 1% forecast for 2026 aligns with the estimate in the government’s Draft Budgetary Plan. Employment is expected to continue increasing, with unemployment remaining near 6%.
Potential Oil Shock Could Lead Italy into Recession
The central bank issued a warning that economic uncertainty persists at high levels. A significant rise in crude oil prices, combined with rising inflation, could bring growth to a halt this year. Under such a scenario, the economy might contract by 0.3% in both 2027 and 2028. The bank highlighted the conflict in the Middle East as a key source of unpredictability for the economic outlook. Energy prices continue to be the primary risk factor for the Italian economy.
Assuming oil prices average $114 per barrel in the fourth quarter of 2026 and natural gas at €76 per megawatt hour during the same period, both are expected to decline over the remaining forecast horizon. The bank anticipates that the rise 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 Likely to Slow by 2028
Inflation for consumer prices is projected to average 3.2% in 2026, primarily driven by energy costs. The bank predicts a slowdown to 2.4% in 2027 and further easing to 1.7% in 2028. Core inflation is expected to remain around 2% throughout this period. Household consumption is forecasted to weaken in the latter half of 2026 and into 2027, as rising prices erode real incomes during this phase.
The bank anticipates a recovery in consumption towards the end of the forecast period. Investment is expected to decline significantly in 2028 due to increasing financing costs. Exports are expected to be supported by demand from Italy’s primary markets, though their growth will likely lag behind international trade trends driven by high-tech goods such as AI products. The bank noted Italy’s limited participation in this segment.