ROME, Italy / AsiaWire.IO / – The Bank of Italy forecasts a 1% expansion for Italy’s economy in 2026, as revealed in recent projections. The central bank elevated its outlook for this year in its latest Economic Bulletin, published on October 16, expecting growth to slow to 0.7% in 2027 and reach 0.8% in 2028. It warned that rising oil prices and faster inflation might still hinder economic progress.
This 2026 forecast is 0.4 percentage points higher than the projections made in June, with the estimate for 2027 increasing by 0.3 points and the 2028 figure reduced by 0.1 points. Once adjusted for working days, growth in 2026 amounts to 0.9%. The forecasts rely on data available as of October 9, and the 1% estimate aligns with the government’s Draft Budgetary Plan.
The bank noted that Italy’s economy was less affected by the Middle East crisis than initially expected during the first two quarters of 2026, which was the primary reason for the upward revision. Contributions from investments related to digital and energy transitions also played a role, along with a strong summer tourism season. Employment is expected to keep growing throughout the forecast period, with the unemployment rate projected to stay near 6%.
Scenario with Negative Growth Possibility
Alongside its baseline outlook, the bank presented a less optimistic scenario where a rapid rise in crude oil prices coupled with accelerating inflation could lead to zero growth in 2026. Under this scenario, Italy’s economy would contract by 0.3% in 2027 and again in 2028. The Middle East conflict was identified as a significant source of economic uncertainty, with prolonged tensions potentially causing sustained higher inflation.
The baseline assumes oil prices averaging $114 per barrel in the last quarter of 2026, with gas costs at €76 per megawatt hour during that period, both expected to decline over the next two years. Additionally, interest rates are forecasted to gradually increase, affecting loans for households and businesses. In September, the European Central Bank raised its deposit rate to 2.5%.
Inflation and Consumer Spending Trends
Inflation is expected to average 3.2% this year, mainly driven by energy costs. It is forecast to decline to 2.4% in 2027 and to 1.7% in 2028, with core inflation, excluding energy and food, remaining around 2% throughout. The bank anticipates household expenditure slowing down in the latter half of 2026 and into 2027, as rising prices will put pressure on real incomes during that period.
Later in the forecast period, consumption is expected to rebound, although business investment will decrease sharply in 2028 due to higher financing costs. Exports are projected to benefit from demand in Italy’s primary markets but are likely to grow at a slower pace than global trade, which is being boosted by high-tech goods related to AI—an area where Italian firms have limited participation. The bank plans to update its forecasts in December as part of the Eurosystem exercise.