ROME, Italy / AsiaWire.IO / – The economy of Italy is anticipated to expand by 1% in 2026, based on recent forecasts from the Bank of Italy. The central bank has increased its prediction for this year in its latest Economic Bulletin, issued on October 16. Growth is expected to slow to 0.7% in 2027 and reach 0.8% in 2028. The bank warned that rising oil prices and accelerated inflation could still impede the economic momentum.
The forecast for 2026 has been revised upward by 0.4 percentage points compared to the June estimates. The projection for 2027 was adjusted upward by 0.3 points, while the estimate for 2028 was decreased by 0.1 points. When data is adjusted for working days, the growth for 2026 stands at 0.9%. These projections are based on information available as of October 9. The 1% forecast aligns with the government’s Draft Budgetary Plan.
The bank noted that the Middle East crisis impacted Italy’s economy less than initially expected during the first two quarters of 2026. This was the primary reason for the upward revision. Additionally, investments related to digital transformation and energy transition contributed positively. Tourism experienced a strong summer season. Employment is forecasted to continue rising throughout the projection period. The unemployment rate is expected to stay near 6% during the forecast horizon.
Adverse scenario suggests stagnation
Alongside its baseline outlook, the bank outlined a less optimistic scenario. A significant rise in crude oil prices combined with escalating inflation could result in zero growth in 2026. Under this scenario, Italy’s economy would contract by 0.3% in both 2027 and 2028. The bank identified the Middle East conflict as a key source of uncertainty. Prolonged tensions could lead to sustained higher inflation rates.
The baseline projections assume an average oil price of $114 per barrel in the last quarter of 2026. Gas prices are estimated at €76 per megawatt hour for that period. Both are expected to decline over the subsequent two years. The European Central Bank raised its deposit rate to 2.5% in September, and higher market interest rates are anticipated to gradually impact loans to businesses and households.
Inflation pressures dampen household spending
Inflation is projected to average 3.2% this year, mainly driven by energy costs. It is forecasted to decrease to 2.4% in 2027 and further to 1.7% in 2028. Core inflation, which excludes energy and food prices, should remain around 2% throughout the period. The bank expects household consumption to slow down in the latter half of 2026 and into 2027, as rising prices will erode real incomes during that time.
Later on, household spending is expected to recover within the forecast period. Business investment is projected to decline sharply in 2028 due to increased borrowing costs. Exports are likely to benefit from demand in Italy’s main trading partners, though their growth rate is expected to lag behind global trade expansion. The global trade boost is largely driven by high-tech products related to AI, in which Italian firms have limited participation. The bank will update its forecasts in December as part of the Eurosystem exercise.