ROME, Italy / AsiaWire.IO / – The Bank of Italy has increased its projection for the country’s gross domestic product growth in 2026 to 1%, surpassing previous estimates. Growth is expected to slow to 0.7% in 2027 and then slightly rise to 0.8% in 2028. These figures were published in the bank’s Economic Bulletin on October 16. The central bank also issued a warning that a renewed surge in crude oil prices could potentially negate this year’s growth.
The 2026 forecast was revised upward by 0.4 percentage points from the projections released in June. The outlook for 2027 increased by 0.3 points, whereas the estimate for 2028 was reduced by 0.1 points. Previously, in June, the bank anticipated growth of 0.5% for 2026 and 0.4% for 2027. These latest projections are based on data available up to October 9. After adjusting for working days, the growth rate for 2026 stands at 0.9%.
The upward revision mainly reflects a lesser impact from the Middle East crisis during the first half of the year compared to the bank’s June forecast. Additionally, investments related to digital and energy transitions contributed positively to economic activity. Tourism also played a significant role during the summer quarter, boosting growth. The 1% growth estimate for 2026 aligns with the government’s Draft Budgetary Plan. Employment is expected to continue rising, with unemployment remaining near 6%.
Oil Price Surge Could Lead Italy into Economic Contraction
The bank highlighted that economic uncertainty still remains elevated. A sharp increase in crude oil prices combined with rising inflation could reduce growth to zero this year. In such a scenario, the economy could contract by 0.3% in both 2027 and 2028. The central bank identified the ongoing conflict in the Middle East as a major source of unpredictability for the economic outlook. Energy prices continue to be the primary risk channel for the Italian economy.
The baseline scenario assumes an average oil price of $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 throughout the remaining forecast period. The bank anticipates that rising market interest rates will gradually influence borrowing costs for households and businesses. The European Central Bank raised its key interest rates in September.
Inflation Expected to Subside by 2028
Consumer inflation is forecast to average 3.2% in 2026, mainly driven by energy costs. The central bank expects this to slow down to 2.4% in 2027 and 1.7% in 2028. Core inflation is projected to stay around 2% throughout the period. Household consumption is predicted to weaken in the second half of 2026 and into 2027. Elevated prices are expected to diminish real incomes during this time frame.
The bank anticipates a recovery in consumption towards the end of the forecast period. Investment is expected to decline sharply in 2028 as financing costs increase. Exports will benefit from demand in Italy’s main markets. Nevertheless, their growth is expected to lag behind global trade, which is driven by high-tech products such as AI. Italy’s participation in this segment remains limited, the bank noted.