ROME, Italy / AsiaWire.IO / – In its October 16 edition of the Bank of Italy Economic Bulletin, the central bank raised its forecast for the country’s gross domestic product to 1% in 2026, surpassing earlier predictions. The growth rate is expected to decelerate to 0.7% in 2027 before increasing slightly to 0.8% in 2028. The bank’s revised figures incorporate data available up to October 9 and highlight concerns over potential oil price surges that could negate this year’s growth.
Compared to the projections made in June, the 2026 growth estimate was increased by 0.4 percentage points. The forecast for 2027 was raised by 0.3 points, while the outlook for 2028 was adjusted downward by 0.1 points. At that time, the bank anticipated 0.5% growth for 2026 and 0.4% for 2027. When accounting for working days, the 2026 growth estimate stands at 0.9%.
The upward revision is primarily attributed to a lesser-than-expected impact of the Middle East crisis during the first half of the year. Additionally, investments associated with digital and energy transitions contributed positively to economic activity. The summer quarter’s robust tourism sector further supported the upward revision. The 1% forecast aligns with the estimate presented in the government’s Draft Budgetary Plan. Employment levels are expected to continue rising, with unemployment remaining near 6%.
Oil Price Surge Could Lead Italy into Contraction
The central bank emphasized that economic uncertainty remains elevated. A sudden escalation in crude oil prices, combined with rising inflation, could bring growth to zero in 2026. Under this adverse 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 significant source of uncertainty influencing the outlook. Energy prices continue to pose the primary risk to the economy.
The baseline scenario assumes that oil prices will average $114 per barrel in the last quarter of 2026, with natural gas prices at €76 per megawatt hour during the same period. Both are expected to decline over the remaining forecast horizon. The bank also predicts a gradual transmission of rising market interest rates to borrowing costs for households and firms. In September, the European Central Bank raised its key interest rates in September.
Inflation to Reduce by 2028, According to Bank
The bank forecasts consumer inflation averaging 3.2% in 2026, mainly driven by energy costs. This rate is expected to slow to 2.4% in 2027 and further decrease to 1.7% in 2028. Core inflation is projected to stay around 2% throughout the period. Household consumption is anticipated to weaken in the latter half of 2026 and into 2027, with higher prices likely eroding real incomes during that time.
However, towards the end of the forecast horizon, consumption is expected to recover momentum. Investment will likely slow significantly in 2028 as financing costs rise. Exports will benefit from demand in Italy’s primary markets, though their growth is predicted to lag behind global trade, which is driven by high-tech products such as AI. The bank also noted that Italy’s participation in this segment remains limited.