Note on Italian economy - March-April 2026

In the first quarter of 2026, the international economy is characterised by strong dynamism in the Asian region, a good performance from the United States, and persistent weakness in Europe. 

The available data only partially incorporate the effects of the conflict in the Middle East, which is causing a sharp reduction in supply and a marked rise in the prices of energy raw materials. The outlook remains uncertain, closely linked to the duration of the war and its effects on energy market. 

According to the preliminary estimate for the first quarter of 2026, Italian GDP grew by 0.2% on a quarterly basis, continuing the expansion trend that began in the second half of 2025. 

In March, the seasonally adjusted industrial production index recorded its second consecutive increase on a monthly basis (+0.7%, after +0.2% in February). However, on average, production decreased slightly in the first quarter compared to the previous three months (-0.2%). 

In the labour market, the number of employed persons decreased slightly in March (-0.1%), amounting to 24 million 124 thousand units. The decline affected only women, those aged 15-24, and those aged 50 or older. By professional status, employment decreased among fixed-term employees and self-employed workers. In the first quarter of 2026, the quarter on quarter dynamic for employed persons showed a slight increase (+0.1%). 

In April, according to preliminary estimates, the harmonised index of consumer prices (HICP) in Italy increased by 2.9% year on year, accelerating from 1.6% in March, driven by recent international events, and approaching the euro area average (+3.0% in April; +2.6% in March).

Focus: The inflation surge between 2022 and 2023 has reignited the debate over fiscal drag, the phenomenon whereby increases in nominal income push taxpayers into higher tax brackets, thereby raising the average tax rate. According to Istat estimates using the FaMiMod model, the tax reforms implemented between 2021 and 2026, including the transition from dependent child deductions to the Universal Allowance, more than offset the drag observed in the same period, resulting in an average benefit of 40 euros per taxpayer. The Universal Allowance played a crucial role in this balance, as its founding law provides for its cost-of-living indexation. The measures had a strong redistributive profile, favouring low- to middle-income earners and employees, while pensioners and higher-income earners were penalised or not fully compensated.