Gulf conflict hits Italian sentiment; inflation expectations stable
The Banca d'Italia's Q1 2026 survey shows a marked deterioration in Italian firms' economic outlook following the Persian Gulf conflict. Despite this, inflation expectations remain below 2 percent across all time horizons.
Conflict darkens economic outlook
The Banca d'Italia's Q1 2026 survey, conducted between February 20 and March 18, reveals a significant deterioration in Italian firms' economic outlook.
This decline, common across all sectors, coincided with the outbreak of the Persian Gulf conflict.
The balance of positive and negative assessments for the general economic situation fell by 20 percentage points to -35. For firms surveyed after February 28, this balance dropped further to -47 percentage points, a decline comparable to that seen after the 2022 Russian invasion of Ukraine.
Operating conditions also worsened, primarily due to rising energy commodity prices and heightened geopolitical uncertainty.
Demand weakens, employment improves
Total demand weakened across all sectors, with sales judgments nearing zero.
Export prospects also deteriorated, particularly in manufacturing.
Despite this, employment expectations improved across all sectors, with a higher percentage of firms anticipating an increase in staff than a contraction, especially in services.
Inflation steady, growth fragile
Firms' inflation expectations remain stable below 2 percent, despite worsening sentiment and higher production costs.
This suggests businesses absorb costs, indicating price stability resilience.
The overall picture is fragile growth, with external shocks contained but robust expansion constrained.