ROME, Italy / AsiaWire.IO / – The Bank of Italy has increased its projection for Italy’s gross domestic product to grow by 1% in 2026, surpassing its earlier estimate. The central bank’s Economic Bulletin, published on October 16, details that economic growth is expected to slow to 0.7% in 2027 and then slightly improve to 0.8% in 2028. The report also highlighted concerns that a renewed spike in crude oil prices could potentially negate this year’s growth.
The upward revision for 2026 represents a 0.4 percentage point increase from the forecasts made in June. Meanwhile, the estimate for 2027 was raised by 0.3 points, but the outlook for 2028 was reduced by 0.1 points. Back in June, the bank anticipated growth of 0.5% in 2026 and 0.4% in 2027. These latest figures are based on data available through October 9. When adjusted for working days, the growth rate for 2026 stands at 0.9%.
The bank attributes the upward revision mainly to a lesser impact from the Middle East crisis during the first half of the year than previously expected in June. Additionally, investment related to digital transformation and energy transition efforts contributed to the positive outlook. Strong tourism activity during the summer quarter further supported growth. The 1% forecast for 2026 aligns with the estimate in the government’s Draft Budgetary Plan. Employment is projected to continue rising, with unemployment remaining close to 6%.
Oil Price Shock Could Lead Italy into Contraction
The central bank issued a warning that economic uncertainty remains significant. A sharp increase in crude oil prices combined with rising inflation could reduce growth to zero this year. In such a scenario, the economy would contract by 0.3% in both 2027 and 2028. The bank identified the ongoing conflict in the Middle East as a key source of uncertainty for future prospects. Energy prices continue to be the primary risk factor for the economy.
The baseline scenario assumes an average of $114 per barrel for oil in the fourth quarter of 2026. Natural gas prices are expected to be €76 per megawatt hour over the same period. Both are forecast to decline in the following months. The bank anticipates that increasing market interest rates will gradually pass through to borrowing costs for both households and firms. The European Central Bank raised its key interest rates in September.
Inflation Expected to Decline by 2028
Consumer price inflation is forecasted to average 3.2% in 2026, mainly driven by energy expenses. The bank projects inflation will slow to 2.4% in 2027 and further to 1.7% in 2028. Core inflation is expected to remain around 2% throughout this period. Household consumption is anticipated to weaken in the latter half of 2026 and into 2027, as rising prices erode real incomes during this timeframe.
According to the bank, consumption is likely to pick up again toward the end of the forecast horizon. Investment growth is expected to slow considerably in 2028 due to increasing financing costs. Exports will benefit from demand in Italy’s main trading partners, although their growth rate is predicted to lag behind global trade, which is driven by high-tech goods such as AI products. The bank also noted that Italy’s involvement in this sector remains limited.