ROME, Italy / AsiaWire.IO / – The Bank of Italy has increased its forecast for the country’s gross domestic product to expand by 1% in 2026, surpassing its previous estimate. The bank anticipates growth will then decelerate to 0.7% in 2027 before slightly rising to 0.8% in 2028. These figures were published in its Economic Bulletin on October 16, and the institution also cautioned that a renewed surge in crude oil prices could negate this year’s growth prospects.
The upward revision for 2026, by 0.4 percentage points from the projections released in June, was accompanied by a 0.3-point increase for 2027, while the outlook for 2028 was reduced by 0.1 points. Previously, in June, the bank had estimated growth at 0.5% for 2026 and 0.4% for 2027. These updated figures rely on data available up to October 9, and after adjusting for the number of working days, the growth estimate for 2026 stands at 0.9%.
The bank attributed the upward adjustment primarily to a smaller-than-expected impact from the Middle East crisis during the first half of the year, which was initially anticipated to be more severe in June. Additionally, investment related to digital and energy transition efforts contributed positively to economic activity, while robust tourism during the summer quarter also supported growth. The 1% forecast for 2026 aligns with the estimate presented in the government’s Draft Budgetary Plan. Employment is projected to continue increasing, with unemployment hovering around 6%.
Oil Price Spike Could Lead to Economic Contraction
The central bank issued a warning that economic uncertainty remains elevated, emphasizing that a sharp rise in crude oil prices combined with accelerating inflation could reduce growth to zero this year. In such a scenario, the economy would shrink by 0.3% in both 2027 and 2028. The bank highlighted the conflict in the Middle East as a significant source of future uncertainty, with energy prices continuing to be the primary risk factor for Italy’s economy.
The baseline scenario assumes that oil prices will average $114 per barrel in the fourth quarter of 2026, and natural gas prices will be at €76 per megawatt hour during the same period. Both are expected to decline over the remaining forecast horizon. The bank also expects that increases in market interest rates will gradually influence borrowing costs for households and businesses. Notably, the European Central Bank raised its key interest rates in September.
Inflation to Slow Down by 2028
According to projections, consumer inflation will average 3.2% in 2026, primarily driven by energy costs. The bank expects inflation to decrease to 2.4% in 2027 and further to 1.7% in 2028. Meanwhile, core inflation is forecasted to remain around 2% throughout this period. Household consumption is expected to weaken during the second half of 2026 and into 2027, as rising prices are likely to diminish real incomes during this timeframe.
However, the bank predicts that consumption will regain momentum toward the end of the forecast period. Investment is anticipated to slow markedly in 2028 as financing costs increase, but exports will benefit from demand in Italy’s main markets. Despite this, their growth is expected to lag behind the expansion of international trade, which is driven by high-tech goods such as AI products, a segment in which Italy’s participation remains limited, as the bank pointed out.
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