Italy's Economic outlook 2025 - 2026

The Italian GDP is projected to increase by 0.5% in 2025 and 0.8% in 2026, following a growth of 0.7% in 2024).

The anticipated GDP growth during the forecast period will be entirely driven by domestic demand, excluding inventories, contributing +1.1 percentage points to the increase in both years. In contrast, net foreign demand is expected to present a negative contribution of -0.6 and -0.2 percentage points, respectively. This forecast for net foreign demand assumes a reduction in uncertainty surrounding U.S. trade policy, stabilisation of international demand, and continued moderation in energy commodity prices.

Private consumption growth is projected to rise, albeit at a moderate pace, with estimates of +0.8% in 2025 and +0.9% in 2026. This increase reflects the positive dynamics of wage and employment growth, as well as a decline in the savings propensity and the spending deflator of resident households in 2026. Investment growth is anticipated to accelerate significantly in 2025, rising by 2.8% compared to 0.5% in 2024, and is expected to maintain a steady pace in 2026 at 2.7%. This growth is underpinned by the completion of projects outlined in the NRRP.

Employment, measured in terms of labour units (WU), is projected to increase at a rate surpassing that of GDP, with growth rates of +1.3% in 2025 and +0.9% in 2026, accompanied by a further slight reduction in the unemployment rate, forecasted at 6.2% in 2025 and 6.1% in 2026.

Following a decline in prices throughout 2025, a further slowdown in inflation dynamics is anticipated for 2026, supported by decreasing energy prices and a stabilisation of demand prospects at moderate levels. The deflator for household expenditure is expected to grow by 1.7% in 2025, in line with these trends, with a further reduction to 1.4% in 2026

The international framework 

Resilient global growth in a context of reduced uncertainty

The global economy during the first nine months of 2025 has generally displayed greater resilience than anticipated. The latest forecasts from the European Commission predict a modest deceleration in global GDP growth to 3.1% in 2025 and in 2026, down from 3.3% in 2024, influenced by both major advanced and emerging economies.

In the United States, the first half of 2025 was marked by significant fluctuations in imports. Nevertheless, the economic cycle received support from investments in and private consumption, which benefited from rising disposable income and favourable effects on financial wealth. For the year overall, however, GDP growth is projected to slow to 1.8%, down from 2.8% in 2024. This deceleration is attributed to trade policy uncertainty, reduced employment growth, and the ramifications of an extended government shutdown. Looking ahead to 2026, significant stability of the growth rate is expected (+1.9%). This stability will likely be facilitated by increased import tariffs and immigration restrictions, counterbalanced by supportive fiscal and monetary policy, a strong impetus for investments in artificial intelligence, and a diminished trade deficit.

The euro area is anticipated to sustain its economic growth rate between 2025 and 2026. This year, economic performance has exceeded expectations, primarily due to increased exports in anticipation of forthcoming tariff increases, improved financing conditions, the return of inflation to levels consistent with the European Central Bank’s targets, and the investment stimulus facilitated by European Union funds. On average for the year, GDP growth is projected to accelerate to 1.3% in 2025, up from 0.7%. In contrast, 2026 is expected to demonstrate relative stability compared to 2025, with a growth rate of 1.2%, amid diverse economic trends across major countries. Germany, following modest growth of 0.2% in 2025, is forecast to see a significant rebound to 1.2% in 2026, driven by expansionary public spending measures that are likely to stimulate real wages, consumption, and investment. France is expected to observe a modest recovery in 2026, with a growth rate of 0.9% following 0.7% in 2025; however, ongoing economic and political uncertainty, along with necessary fiscal adjustments, will continue to exert pressure on domestic demand. Lastly, in Spain, while GDP growth is set to remain high, it is projected to decelerate to 2.3%, down from 2.9% in 2025, due to weaker domestic demand and a slightly negative impact from foreign demand.

Among emerging economies, China is projected to end 2025 with a growth rate of 4.8%, approaching the 5% target, driven by government subsidies, increased private consumption, and exports bolstered by early shipments to the United States and robust foreign demand from other emerging markets. During 2026, however, the growth rate is anticipated to gradually decelerate to 4.6%, influenced by a prolonged real estate crisis, weaker household demand, and declining employment indicators.

In this context, the depletion of factors that supported international trade in the first half of the year—for example, anticipatory purchases and sales—along with the impact of customs duties, is expected to weaken international trade volume growth further. Following a slowdown in 2025 (+2.8% compared to +3.4% in 2024), this trend is projected to continue into 2026 (+2.1%). The anticipated developments will be influenced by the lingering, albeit diminishing, uncertainty in trade policy, as well as an adverse statistical effect arising from the relatively robust growth experienced in 2025, which was bolstered by temporary factors.

Expectations of potential adverse effects of tariffs on growth and inflation in the United States have led to a gradual depreciation of the dollar against the euro throughout the year. However, this trend appears to have halted at the end of 2025. On average for the year, the nominal exchange rate is projected at 1.13 dollars per euro, reflecting a 4.4% appreciation of the European currency relative to the 2024 average (1.08 dollars per euro). In 2026, significant stability is anticipated in relation to the levels observed at the end of 2025, leading to a further average appreciation of the European currency against the US dollar (+2.8%, equivalent to 1.16 dollars per euro) (Table 2).

Expectations of reduced global demand, combined with the OPEC+ nations’ decision to increase oil production, have placed downward pressure on crude oil prices throughout the year, thereby contributing to lower global inflation expectations. Brent crude prices are projected to average $66.1 per barrel in 2025, a notable decline from the 2024 average of $80.7, representing an 18% decrease. In 2026, the expected stabilisation of international demand, along with the supply policies implemented by producing countries, is likely to continue moderating price fluctuations, with expectations that prices will align with the levels observed at the end of 2025. This forecast indicates an additional reduction in the average Brent price to $61.5, a 7% decrease.

Economic Outlook in the Final Months of 2025 and Forecasts for the Italian Economy

In the third quarter of this year, the seasonally-adjusted and adjusted-for-days-worked GDP exhibited modest quarter-on-quarter growth, attributed to a positive contribution from final consumption (+0.1 percentage points), gross fixed investment (+0.1 percentage points), and net foreign demand (+0.5 percentage points), counterbalanced by a negative contribution from inventories (-0.6 percentage points). Projected growth for 2025 is +0.5%. All domestic demand components are up compared to the previous quarter (+0.1% domestic consumption, +0.6% gross fixed investment).

On the supply side, challenges persist within the industrial sector (value added at basic prices declined by 0.3% compared to the prior quarter); both industry (in a strict sense) (-0.3%) and construction (-0.2%) experienced slight decreases, while services remained stable (+0.2%).

In November, consumer and business confidence surveys presented mixed signals. The consumer index declined; conversely, the business index improved (Figures 1 and 2). Consumer confidence deteriorated across all components, particularly in unemployment expectations and savings evaluations. In contrast, the manufacturing sector among businesses improved, with indications of stronger expectations for orders and production. However, confidence in the construction sector declined.

In the current scenario, with tensions resulting from US trade policy and uncertainties about the actual impacts of tariffs, it is expected to subside gradually. Stabilising demand from Italy’s primary trading partners, coupled with the ongoing deceleration in prices driven by subdued commodity prices, is bolstering Italian growth.

This growth is set to benefit from, on one hand, recovering wages and employment, and on the other, a resurgence in investment. Following a robust performance in the first half of 2025, this recovery is expected to persist into 2026 at a rate consistent with that observed at the end of the year, propelled by the finalisation of NRRP projects.

Moderate consumption growth, with a slight acceleration anticipated in 2026, alongside robust labour market conditions, is unlikely to influence inflation, which is projected to remain below the Central Bank’s targets. Furthermore, it will benefit from the expected deceleration in energy prices over the two years, as well as the appreciation of the euro.

In 2025, GDP is projected to grow by 0.5%, driven solely by domestic demand, which, excluding inventory changes, is expected to add 1.1 percentage points, while net foreign demand is likely to make a negative contribution of -0.6 percentage points. The Italian economy’s expansionary phase is expected to gain slight momentum in 2026, with a projected growth rate of 0.8%. Once again, the contribution will originate from domestic demand net of inventories, reflecting a positive impact of 1.1 percentage points. The recovery in foreign trade is anticipated to see imports outpacing exports in 2026, despite exports growing faster. Consequently, net foreign demand is expected to continue providing a negative contribution to GDP growth, albeit reduced to -0.2 percentage points compared to -0.6 percentage points in 2025.

In this context, the trade balance is expected to remain positive in 2025 at 2.2% of GDP and expand further in 2026 to 2.4%.

Consumption Accelerates Slightly

Consumer spending growth in the major Eurozone economies was overall weak in the third quarter of 2025. Throughout the year, France, Germany, and Italy demonstrated modest, largely stable quarterly changes, with quarter-on-quarter adjustments of +0.2%, 0.0%, and +0.1%, respectively, in the third quarter. In contrast, Spain achieved a notably more dynamic performance, characterised by steady acceleration, with increases of 0.4%, 0.5%, and 1.1% across the first three quarters.

In relation to government spending, Italy is showing a less dynamic performance than other major European nations. Following a contraction in the first quarter, the modest growth already observed in the second quarter (+0.2%) was reaffirmed in the third quarter, which remains particularly subdued when juxtaposed with Spain (+1.1%), France (+0.8%), and Germany (+0.5%).

During the July-September period, Italian household expenditure rose modestly by 0.1%. Durable goods posted a notable rebound, with a 2.6% growth rate, following a 0.4% increase in the second quarter and a significant contraction at the beginning of the year (-1.9%). In contrast, non-durable goods stagnated, with a growth rate of 0.0%, following increases of 0.1% and 0.5% in the first two quarters. Meanwhile, service consumption declined by 0.2% on a quarterly basis, following increases of 0.5% and 0.1% in the previous two quarters.

Throughout 2025, a modest acceleration in household and Private Social Institutions (PSI) consumption in real terms is anticipated, rising by 0.8%, up from 0.6% in 2024. This growth is expected to be driven by an increase in household disposable income, which will counterbalance a rise in the propensity to save. Furthermore, consumption is projected to rise slightly by 0.9% in 2026. This is likely to be supported by a deceleration in prices, with the consumption deflator forecasted at 1.4%, down from 1.7%, as well as a slight decrease in the propensity to save. Conversely, Public Administration (PA) consumption is expected to align with the moderate growth rates observed in 2025, continuing into 2026. This will result in an average annual slowdown over the two-year forecast period, with growth rates of 0.4% and 0.2% in 2025 and 2026, respectively.

Investment growth resumes

Investment momentum strengthened substantially in 2025. During the initial three quarters, capital accumulation rose by 3.1% in comparison to the same period in 2024; France and Germany encountered contractions of (-0.3% and -0.6%, respectively), whereas Spain demonstrated more robust growth at (+5.9%).

During the same period, Italy’s expansion was predominantly driven by investment in non-residential buildings, which rose by 15.2%. This growth was bolstered by infrastructure projects and initiatives funded by the National Recovery and Resilience Plan (NRRP). Additionally, investment in machinery, equipment, and armaments experienced a resurgence, growing by 2.4% following the weaknesses observed in 2024. Nevertheless, the decline in housing investment, which fell by 5.6%, persisted, mainly due to the contraction of construction incentives (Figure 3).

Looking ahead to the coming months, optimistic projections are emerging from manufacturing confidence surveys, indicating an improvement in financing conditions, attributed to the ECB’s interest rate cuts and optimistic investment forecasts for 2025-26. Moreover, encouraging trends are beginning to materialise in construction production.

In the projected scenario, total investments are anticipated to rise in 2025 (+2.8%). This upward trend is expected to continue into 2026 (+2.7%), driven by favourable developments in plant and machinery, armaments, non-residential construction, and the execution of NRRP projects. The latter has been factored into the forecasts using conservative criteria: specifically, the review and realignment of deadlines and projects are still in progress during the reference period, and the investment profile accounts only partially for the potential impact of the NRRP. The investment-to-GDP ratio is projected to reach 22.3% in 2025 (up from 22.1% in 2024) and 22.4% in 2026.

Foreign Trade Resilience

Exports of goods and services grew moderately in 2025, with a 0.9% increase (seasonally adjusted, chained) in the first three quarters compared to the same period in the previous year. In contrast, imports rose by 3.2%. However, foreign sales of goods and services exhibited divergent trends. Specifically, goods recorded a slight 0.2% decline in the first three quarters compared to the same period in 2024. This decrease was influenced by a series of announcements and the subsequent imposition of U.S. tariffs, as well as the appreciation of the European currency against the dollar. Export levels for goods fluctuated throughout the year, reflecting positive quarterly growth in the first and third quarters—attributed to advance sales before the implementation of tariff measures—while declining in the second quarter. Conversely, despite a decrease in the second quarter, the services sector demonstrated substantial overall expansion, registering a year-on-year increase of 5.1% in the first three quarters, primarily supported by tourism growth.

In the concluding segment. For the year, a further decline in exports and a deceleration in import growth are anticipated. These trends are projected to result in an average positive adjustment in exports of 0.8% for 2025, compared to a more robust increase in imports of 2.7%. For 2026, the gradual alleviation of tensions stemming from US trade policy and uncertainty regarding the actual effects of tariffs, along with a stabilisation of growth in major economies, is expected to facilitate a return to moderate export growth of 1.6%. In contrast, imports are likely to continue expanding at a more pronounced rate, with a growth rate of 2.4%. Consequently, for both years, net foreign demand is expected to exert a negative influence on GDP growth, with a more significant impact in 2025 at -0.6 percentage points, compared to -0.2 percentage points in 2026.

Labour Market Remains Dynamic 

The labour market demonstrated continued robust performance in the third quarter, with increases in both hours worked and labour units (WUs) for the overall economy, at +0.7% and +0.6%, respectively, compared to the previous quarter. This improvement spanned all sectors; however, the rise in hours worked was most pronounced in construction (+1.4%) and least significant in services (+0.6%). In terms of WUs, the most substantial growth occurred in agriculture (+0.7%), while industry growth was more moderate (+0.4%).

In October, employment growth continued at the same pace as in September, reflecting a 0.3% increase from the prior month and adding 75,000 individuals to the workforce. The employment rate rose to 62.7%, up 0.1 percentage points. Conversely, the unemployment rate declined by 0.2 percentage points to 6.0%, while the number of inactive workers remained stable at 33.2%.

In summary, during the third quarter of 2025, the growth trajectory of contractual wages moderated relative to the previous quarter, though it remained above the inflation rate. This deceleration in wage growth can be attributed to the notable stability within private services and a pronounced slowdown in the industrial sector, which was only partially mitigated by a slight acceleration in the public sector following the disbursement of the contractual holiday allowance. As of September 2025, real contractual wages are 8.8% lower than the levels recorded in January 2021.

In the context of persistently robust labour demand, gross per capita wages rose in the first three quarters of the year, though year-on-year growth decelerated. The fourth quarter is anticipated to show less dynamic growth than the previous quarter, with projections for 2025 indicating per capita wage growth of 2.9%, which should facilitate a recovery relative to inflation, similar to the situation in 2024. In 2026, per capita wage growth is expected to moderate slightly to an average of 2.4%, thereby narrowing the prospects for recovering the purchasing power that was diminished during the two years of 2022-2023.

In the short term, encouraging signs of labour demand are emerging. In the third quarter of 2025, the seasonally adjusted vacancy rate for all firms with employees remained constant at 1.8%, as observed in the first two quarters of the year. Additionally, as of November 2025, employment expectations remain positive across construction, manufacturing, and market services.

In this context, WU growth is projected to exhibit less sustained progress over the two-year forecast period, with rates of 1.3% and 0.9%, respectively, down from 2.2% in 2024, while still surpassing overall GDP growth. The unemployment rate is expected to improve in 2025, decreasing to 6.2% from 6.5% in 2024 and further to 6.1% in 2026.

Inflation continues to decelerate

According to preliminary data, the annual rate of change in the Harmonised Index of Consumer Prices (HICP) decreased to +1.1% in November, down from +1.3% in October. This figure remains significantly below the averages of both the euro area (+2.2%; +2.1% in October) and individual countries such as Germany (+2.6%; +2.3% in the previous month) and Spain (+3.1%; +3.2% in October). Among the major economies, only France recorded a more moderate inflation rate of +0.8% in both months. The projected 2025 inflation rate is +1.6%, which is 0.5 percentage points below the euro area average of +2.1%.

Consumer price inflation for the entire nation (NIC) was recorded at 1.2% in November, according to preliminary estimates, remaining consistent with the previous month and marking the lowest level since early 2025. The recent moderation in price dynamics has been attributed to both domestic production and imported goods. Energy prices continued to decline in November, falling 4.2%, compared with a 4.4% decline in October. The growth rate in services also slowed to 2.2%, down from 2.6%, while food prices showed a more moderate change, slowing to 2.2% from 2.3%. Prices for imported industrial products decreased by 0.2% quarter-on-quarter in September, based on the most recent data available, following a decline of 0.6% in August. This marks the lowest level since November 2021, with a year-on-year decrease of 2.5%, down from 3% in August.

In the coming months, consumer sentiment suggests a modest price increase. In November, the proportion of individuals forecasting an increase in annual inflation over the next 12 months rose to 43%, up from 40.5% in October. Conversely, the percentage of those expecting a decrease fell to 41.5%, down from 42%. Among businesses, a significant majority plans to maintain price stability over the next three months, with figures indicating 85.7% in manufacturing, 91.6% in construction, 87.7% in market services, and 83.5% in trade. Additionally, the balance between those anticipating an increase and those predicting a decrease improved in manufacturing and services, while it declined in construction and trade.

Based on the most recent data, the projected growth of the HICP-NEI indicator (consumer price index excluding imported energy) for 2025 remains consistent with the assessment made last June, at approximately 2%. A more subdued rise in the HICP index, coupled with a smaller-than-anticipated decline in imported energy prices, could lead to a slight decrease in the indicator.

In light of these trends and anticipated movements in international commodity prices, along with a forecast of moderate domestic demand growth, a continued slowdown in inflation is expected in 2026, albeit at a more gradual pace. The household consumption deflator is projected to decrease from +1.7% in 2025 to +1.4% in 2026, while the GDP deflator growth forecasts for 2025 and 2026 stand at +2% and +1.8%, respectively.

Revisions to the Previous Forecast

The current forecast updates the estimates for the 2025-2026 period released in June 2025. Compared with the prior exercise, the oil price has been adjusted downward by $1.6 per barrel for 2025 and $2.5 for 2026. Additionally, the euro exchange rate against the dollar has appreciated by 1.8% in 2025 and 2.7% in 2026. Furthermore, world trade projections have been revised upwards, with an increase of 1.0 percentage points for 2025 and 0.1 percentage points for 2026 compared to the assumptions established in June.

In response to these revisions, exports of goods and services are anticipated to decrease by 0.5 percentage points in 2025 and 0.2 percentage points in 2026, while imports are projected to increase by 0.6 percentage points in 2025 and 0.2 percentage points in 2026. The dynamics of investment over the year have yielded a more vigorous profile, resulting in upward adjustments of 1.0 percentage points for 2025 and 1.6 percentage points for 2026.

Relative to the June forecast, the performance of the labor market has shown less dynamism, resulting in an upward adjustment of the unemployment rate by 0.2 percentage points in 2025 and 0.3 percentage points in 2026, alongside a reduction in gross compensation per unit of labor, which is projected to decline by 0.4 and 0.9 percentage points, respectively, throughout the two-year forecast period.

More moderate energy commodity prices have facilitated a more pronounced decrease in inflation, including a significant reduction in the deflator of resident household expenditure by 0.1 percentage points in 2025 and 0.2 percentage points in 2026.

Overall, the GDP growth forecast has been revised downwards by 0.1 percentage points for 2025, while the estimates for 2026 remain consistent with those provided in June.