ROME, Italy / AsiaWire.IO / – In its October 16 Bank of Italy Economic Bulletin, the institution announced an upward revision of the country’s 2026 gross domestic product growth forecast to 1%, surpassing previous predictions. The projected expansion is expected to slow down to 0.7% in 2027 before slightly increasing to 0.8% in 2028. The bank highlighted that the latest figures reflect data available up to October 9 and noted a potential risk from rising crude oil prices that could negate this year’s growth.
This 2026 forecast was increased by 0.4 percentage points compared to the projections issued in June. Additionally, the 2027 outlook was raised by 0.3 points, whereas the estimate for 2028 was decreased by 0.1 points. Earlier projections from June suggested a growth of 0.5% for 2026 and 0.4% for 2027. When adjusted for working days, the 2026 growth rate stands at 0.9% based on the latest data.
The revision primarily stems from the expectation that the impact of the Middle East crisis on the economy in the first half of the year was less severe than initially anticipated in June. The report also credits increased activity in digital and energy-related investments, along with robust summer tourism, as factors supporting growth. The forecast for 2026 aligns with the estimates in the government’s Draft Budgetary Plan. Employment is anticipated to continue climbing, with unemployment remaining close to 6%.
Oil Price Surge Could Drive Italy into Recession
The Bank of Italy cautioned that economic uncertainty continues to be elevated. A significant increase in crude oil prices combined with rising inflation could lead to zero growth this year. Under this unfavorable scenario, the economy might shrink by 0.3% in both 2027 and 2028. The bank identified the ongoing conflict in the Middle East as a primary factor adding to economic unpredictability. The main channel of risk for the Italian economy remains energy prices.
The central scenario assumes that oil prices will average $114 per barrel during the fourth quarter of 2026, with natural gas prices at €76 per megawatt hour over the same period. Both are expected to decline over the remaining forecast horizon. Additionally, the bank predicts that rising market interest rates will gradually increase borrowing costs for households and businesses. The European Central Bank raised its key interest rates in September.
Inflation Set to Decline by 2028
Consumer price inflation is projected to average 3.2% in 2026, mainly driven by energy costs. The bank forecasts a slowdown to 2.4% in 2027 and 1.7% in 2028. Core inflation is expected to stay around 2% throughout the period. Household spending is predicted to weaken in the latter half of 2026 and into 2027, as rising prices erode real incomes.
The recovery in consumption is expected to occur towards the end of the forecast period, according to the bank. Investment growth is projected to decline sharply in 2028 due to higher borrowing costs. Export activity will benefit from demand in Italy’s main markets, although their growth is expected to lag behind global trade, which is driven by high-tech products like AI. The bank also noted that Italy’s presence in this segment remains limited.