ROME, Italy / AsiaWire.IO / – The Bank of Italy has increased its projection for the country’s gross domestic product to grow by 1% in 2026, surpassing its earlier estimate. The bank anticipates a slowdown to 0.7% in 2027, followed by a modest rise to 0.8% in 2028. These figures were published in the bank’s Economic Bulletin on October 16. Additionally, it issued a warning that a renewed surge in crude oil prices could negate this year’s growth prospects.
The 2026 growth forecast was elevated by 0.4 percentage points from the projections issued in June. The estimate for 2027 was revised upward by 0.3 points, whereas the outlook for 2028 was decreased by 0.1 points. In the June report, the bank had forecast growth of 0.5% for 2026 and 0.4% for 2027. The updated figures incorporate data available up to October 9. When adjusted for working days, the 2026 growth rate stands at 0.9%.
The bank explained that the upward revision mainly reflects a lesser impact from the Middle East crisis in the first half of the year than initially expected in June. Investment activity related to digital and energy transitions also contributed to supporting economic activity. Strong tourism during the summer quarter further boosted growth. The 1% forecast for 2026 aligns with the estimate included 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 Economic Contraction
The central bank cautioned that economic uncertainty persists at elevated levels. A sharp increase in crude oil prices, combined with rising inflation, could reduce growth to zero this year. Under this negative scenario, the economy would contract by 0.3% in both 2027 and 2028. The bank pointed to the ongoing conflict in the Middle East as a significant source of uncertainty affecting the outlook. Energy prices remain the primary channel of risk for the Italian economy.
The baseline scenario assumes an average oil price of $114 per barrel in the fourth quarter of 2026. It also projects natural gas prices at €76 per megawatt hour for the same period. Both energy costs are expected to decline over the remaining forecast horizon. The bank predicts that the increase in market interest rates will gradually pass through to borrowing costs for households and firms. The European Central Bank raised its key interest rates in September.
Inflation Likely to Decelerate by 2028
Consumer price inflation is projected to average 3.2% in 2026, primarily driven by energy costs. The bank anticipates a slowdown to 2.4% in 2027 and 1.7% in 2028. Core inflation is expected to stay around 2% throughout the forecast period. Household consumption is forecasted to weaken during the second half of 2026 and into 2027. Rising prices are expected to erode real incomes during this time frame.
The bank predicts that consumption will regain momentum toward the end of the forecast horizon. Investment is expected to slow significantly in 2028 as borrowing costs increase. Export growth will be supported by demand from Italy’s main markets, although their growth is expected to lag behind global trade. The global trade expansion is largely driven by high-tech goods such as AI products. Italy’s participation in this segment remains limited, the bank noted.