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 earlier estimates. The forecast indicates 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 October 16 edition of its Economic Bulletin. Additionally, the bank cautioned that a renewed surge in crude oil prices could eliminate this year’s growth prospects.
Compared to the projections made in June, the 2026 growth estimate was lifted by 0.4 percentage points. The forecast for 2027 was revised upward by 0.3 points, whereas the outlook for 2028 was reduced by 0.1 points. In June, the bank had anticipated growth of 0.5% for 2026 and 0.4% for 2027. The latest figures incorporate data available up to October 9. When adjusted for the number of working days, the growth forecast for 2026 reaches 0.9%.
The upward revision primarily reflects a smaller-than-expected impact from the Middle East crisis during the first half of the year, according to the bank. Investment related to digital and energy transitions has also played a role in bolstering economic activity. Summer tourism contributed positively to growth as well. The 1% forecast for 2026 aligns with the estimate in the government’s Draft Budgetary Plan. Employment is projected to continue increasing, with unemployment remaining near 6%.
Oil Price Surge Could Lead Italy to Recession
The central bank issued a warning that high levels of economic uncertainty persist. A significant rise in crude oil prices, combined with accelerating inflation, could result in zero growth this year. Under such a scenario, the economy would contract by 0.3% in both 2027 and 2028. The bank identified the conflict in the Middle East as a key source of this uncertainty. Energy prices remain the primary risk factor for Italy’s economic outlook.
The baseline scenario assumes an average oil price of $114 per barrel in the fourth quarter of 2026. Natural gas prices are expected to be around €76 per megawatt hour during the same period. Both are forecasted to decline throughout the remaining forecast horizon. The bank also expects that rising market interest rates will gradually increase borrowing costs for households and firms. The European Central Bank raised its key interest rates in September.
Inflation Is Projected to Decline by 2028
Consumer price inflation is forecasted to average 3.2% in 2026, mainly driven by energy costs. The bank expects inflation to slow to 2.4% in 2027 and further to 1.7% in 2028. Core inflation is expected to remain around 2% throughout the forecast period. Household consumption is predicted to weaken in the latter half of 2026 and into 2027, with higher prices eroding real incomes during this period.
The bank anticipates that consumption will regain momentum toward the end of the forecast horizon. Investment growth is expected to slow markedly in 2028 due to rising financing costs. Exports will benefit from demand in Italy’s main markets, although their growth will lag behind international trade, which is mainly driven by high-tech products such as AI goods. Italy’s involvement in this sector remains limited, the bank added.