Italy plans 3.4 percent deficit as defence and energy spending rise
Italy’s fiscal plan raises the 2027 deficit to 3.4 percent of GDP from 2.9 percent in 2026. Bank of Italy official Andrea Brandolini reviewed the defence and energy spending plans at a parliamentary hearing on October 12, 2026.
Deficit reduction pauses in 2027
Andrea Brandolini, head of the Bank of Italy’s Economics and Statistics Department, reviewed the 2026 Public Finance Planning Document before the joint parliamentary budget committees.
The government targets deficits of 3.4 percent of GDP in 2027, 3.2 percent in 2028 and 2.3 percent in 2029, against baseline projections of 2.9, 2.7 and 2.2 percent.
Planned primary surpluses are 0.9, 1.4 and 2.4 percent, respectively.
Debt rises from 138.1 percent of GDP in 2026 to 138.5 percent in 2027, then falls to 137.9 percent in 2028 and 136.6 percent in 2029.
Interest spending reaches 4.7 percent in 2029.
Net expenditure grows by 3.3, 1.7 and 0.2 percent over 2027-29. Brandolini noted that the document lacks an updated debt sustainability exercise using the European Commission’s methodology.
Flexibility meets higher borrowing costs
Italy requested the national escape clause on September 10, seeking flexibility of 0.3 percent of GDP each for defence and energy in both 2027 and 2028.
Brandolini noted uncertainty over exiting the excessive deficit procedure while deficits exceed 3.0 percent.
The plan projects growth of 1.0 percent in 2026, 0.8 percent in 2027 and 0.9 percent in 2028.
Italy’s ten-year yield reached 4.6 percent amid energy-driven inflation.
In September, the European Central Bank raised its deposit facility rate by 25 basis points to 2.5 percent.
The debt constraint remains
Brandolini warned that high public debt leaves Italy vulnerable to changes in market risk tolerance.
He identified the roughly one-point fiscal correction in 2029 as a precondition for sustained debt reduction.
He urged investment-led spending and budget offsets to limit deficits and strengthen productivity.