ROME, Italy / AsiaWire.IO / – The Bank of Italy forecasts that Italy’s gross domestic product will expand by 1% in 2026, surpassing earlier predictions. Growth is expected to slow to 0.7% in 2027, then slightly increase to 0.8% in 2028. The central bank disclosed these projections in its Economic Bulletin on October 16. It also cautioned that a renewed rise in crude oil prices could eliminate this year’s growth.
The 2026 forecast was raised by 0.4 percentage points from the projections released in June. The outlook for 2027 increased by 0.3 points, while the 2028 forecast was lowered by 0.1 points. In June, the bank anticipated growth of 0.5% in 2026 and 0.4% in 2027. The latest figures are based on data up to October 9. When adjusted for working days, 2026 growth reaches 0.9%.
The bank noted that the upward revision mainly reflects a smaller impact from the Middle East crisis in the first half of the year than previously expected. Investment in digital and energy sectors also contributed to activity. Tourism during the summer helped boost growth. The 1% forecast aligns with the government’s Draft Budgetary Plan estimate. Employment is predicted to keep increasing, with unemployment near 6%.
The oil shock could cause Italy’s economy to shrink
The central bank warned that economic uncertainty remains high. A sharp increase in crude oil prices combined with rising inflation could halt growth this year. Under this negative scenario, the economy might contract by 0.3% in 2027 and 2028. The bank identified the conflict in the Middle East as a key source of uncertainty. Energy prices continue to pose the greatest risk to the economy.
The baseline 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 forecast to decline later in the projection period. The bank predicts that rising market interest rates will gradually influence borrowing costs for companies and households. The European Central Bank raised its key interest rates in September.
Inflation should decrease by 2028
Consumer inflation is expected to average 3.2% in 2026, mainly driven by energy costs. It should slow to 2.4% in 2027 and 1.7% in 2028. Core inflation is forecast to stay around 2% throughout. Household spending is set to weaken in the latter half of 2026 and into 2027. Higher prices are expected to cut into real incomes during that period.
The bank sees a recovery in consumption later in the forecast horizon. Investment will slow sharply in 2028 as borrowing costs increase. Exports will benefit from demand in Italy’s main markets. However, their growth will lag behind global trade, which is driven by high-tech goods like AI products. Italy’s role in that sector remains limited, the bank noted.