Bank of Italy forecasts subdued growth, citing high geopolitical risk

The Italian economy is bracing for a period of "contained" growth, with the Bank of Italy forecasting GDP to expand by 0.6% in 2026 and slow to 0.4% in 2027. These projections, released in July, represent a slight downward revision for 2027 compared to April estimates.

These figures are presented as a baseline scenario, heavily influenced by significant geopolitical risks, especially concerning the Strait of Hormuz. The Bank of Italy highlights the "high uncertainty" created by renewed hostilities and the impact on energy prices. Potential positive surprises could arise from falling gas and oil prices or increased European defense spending. Conversely, the continuation of U.S.-Iran tensions and disruptions to Hormuz shipping routes could severely impact growth.

Bank of Italy's analysis incorporates the effects of ongoing global conflicts, predicting that consumer inflation will climb to 3.1% this year, primarily due to rising energy costs. Inflation is expected to decrease to 2% over the next two years, a trend mirrored across the Eurozone, which is projected to grow at a faster pace than Italy.

The report notes that Italy's economic growth slowed in the spring quarter after a modest 0.3% expansion in January-March. This slowdown is attributed to a combination of factors, including increased uncertainty, rising energy and production input prices linked to Middle East tensions, and a partial offset to the positive impulses from digital and energy transitions, as well as PNRR-funded projects. Business investment remains weak, with companies showing little demand for credit in the first quarter, and household consumption has also reportedly decelerated despite historically low unemployment rates.