Rome - Italy's central bank has revised down its short-term growth outlook while raising its inflation forecasts, in a report released on Friday that highlighted the fallout from a sharply worse international environment. The Bank of Italy now sees economic growth at 0.6% for this year and 0.5% for 2027, marking a downgrade from its December projections.
The report attributes the change to what it describes as the "radical deterioration of the international outlook" stemming from the U.S.-Israeli war against Iran and the resulting "exceptionally high uncertainty." That deterioration, together with a sudden rise in energy prices, has weakened domestic demand and eroded confidence, the central bank said.
Both the 2026 and 2027 forecasts in the Bank of Italy's update fall short of the government targets set last September, which stood at 0.7% for 2026 and 0.8% for 2027. The Treasury is scheduled to update its own budget and GDP estimates later this month.
Looking further ahead, the Bank of Italy projects 0.6% growth for 2028, a figure that would mark a fourth straight year with growth below 1%. When adjusted for seasonal factors and the number of working days, the bank's forecast is 0.5% growth for both this year and next.
Energy price assumptions in the report put oil at an average of $103 per barrel and natural gas at $55 per megawatt-hour in the second quarter of this year, before a gradual decline. The central bank also presented an adverse scenario in which energy prices rise more and remain elevated for longer; under that path GDP growth would be about 0.5 percentage point lower this year and roughly one percentage point lower in 2027.
Under the bleaker scenario, Italy would face the risk of entering recession in 2027, according to the central bank's analysis.
On inflation, the Bank of Italy raised its estimate for the EU-harmonised consumer price index (HICP) to 2.6% for this year, up from a previous 1.4% forecast and above the European Central Bank's 2% target. The 2027 HICP projection was also revised up slightly to 1.8% from 1.6%.
The report points to a combination of higher energy costs, increased uncertainty and weaker domestic demand as the principal near-term headwinds. The Bank of Italy's updated outlook underscores a more challenging macroeconomic environment and leaves limited margin between official forecasts and the government's own growth ambitions.