Italy: GDP growth subdued, inflation at 3.1 percent in 2026

Banca d'Italia projects subdued GDP growth for Italy, estimating an annual average of 0.5 percent in 2026, 0.4 percent in 2027, and 0.9 percent in 2028.

This outlook is influenced by weaker domestic demand, elevated energy prices, and heightened geopolitical uncertainty.

Following an upward revision by Istat for Q1 2026 GDP growth, the 2026 projection is expected to stand at 0.6 percent.

Consumer prices are projected to rise by an average of 3.1 percent in 2026, before moderating to 2.0 percent in 2027 and 1.9 percent in 2028.

Core inflation, excluding food and energy, is expected to remain near 2 percent throughout the three-year period.

These projections, part of the Eurosystem exercise, were based on data up to May 27. Compared to April's estimates, 2027 GDP was marginally revised downwards, and 2026-2027 inflation was revised upwards by 0.5 and 0.2 percentage points, mainly due to higher commodity price assumptions.

Household spending is estimated to weaken considerably in the second half of 2026, regaining momentum in 2028.

Investment faces headwinds from geopolitical uncertainty, a worsening demand outlook, and rising financing costs.

However, capital expenditure for digital and energy transition, alongside the completion of NRRP projects, continues to provide support.

Export growth is expected to be moderate in 2026 due to weaker international trade, before accelerating in 2027-28. The current account balance is estimated to decline to 0.5 percent of GDP in 2026, primarily due to a wider energy deficit, then recovering to just above 1.0 percent in 2027-28. Employment is projected to expand at a slower pace, with the unemployment rate decreasing in 2026 before stabilizing.