Note on the performance and outlook of the Italian economy - Years 2026-2027

Italian GDP is expected to grow by 0.7% in both 2026 and 2027, following an increase of 0.5% in 2025. Over the forecast horizon, GDP growth would be entirely supported by domestic demand net of inventories (+0.9 and +0.5 percentage points, respectively). In contrast, net foreign demand, negatively affected by the conflict in the Middle East and the resulting increase in energy prices, would contribute negatively in 2026 (-0.2 percentage points) and be neutral in 2027.

In 2026, household and NPISH consumption expenditure is expected to decelerate compared with the previous year (+0.6%, from +1.1% in 2025), constrained by the moderation in the positive dynamics of per capita wages and rising inflation. In 2027, growth is projected to slightly accelerate (+0.7%). Gross fixed capital formation would continue to expand, albeit at different rates over the two years: growth is expected to reach +2.2% in 2026, supported by measures linked to the National Recovery and Resilience Plan (NRRP); in 2027, a marked slowdown is projected on an annual average basis (+0.5%), driven by less favourable financing conditions and the scaling back of public incentives under current legislation.

Employment, measured in terms of labour units (LU), is expected to record slower growth in 2026 (+0.7%, after +1.3% in 2025), accompanied by a further decline in the unemployment rate (5.5%, down from 6.1% in 2025). In 2027, labour unit growth is projected to decelerate further (+0.4%), while the unemployment rate is expected to stabilise.

Commodity price dynamics are expected to feed through into inflation, which is projected to rise sharply during 2026: the household consumption expenditure deflator would average 2.9% over the year, before returning to 2.0% in 2027 as international tensions gradually normalise.

Against an international backdrop characterised by geopolitical tensions, forecast outcomes are more than ever dependent on baseline assumptions. A key factor concerns the duration of the conflict. A simulation exercise was conducted using Istat’s MeMo-It model to assess, under an alternative scenario, the potential effects on the Italian economy of a prolonged conflict between Iran and the United States.

The international framework 

International cycle affected by the consequences of war

Since the early months of 2026, the consequences of the new geopolitical crises have significantly increased uncertainty regarding the outlook for the international business cycle. The sharp rise in energy commodity prices has already begun to pass through to consumer prices, leading, on the one hand, to expectations of interest rate increases by central banks and, on the other hand, to deteriorating business and consumer confidence, with possible repercussions for consumption and investment trends.

Major international institutions forecast a slowdown in the global economy, assuming a rapid resolution of the conflict in the Middle East. The latest estimates by the European Commission indicate a deceleration in global GDP growth in 2026 (+2.8%, from +3.4% in 2025), followed by a renewed acceleration in 2027 (+3.2%), a pattern shared by both major advanced and emerging economies.

In the United States, economic growth in 2025 was supported by robust investment, particularly in the technology sector, and by accommodative monetary and fiscal policies. Over the forecast period, GDP growth is expected to remain broadly stable (+2.2% and +2.1% in 2026 and 2027, respectively, following +2.1% in 2025). This outlook reflects lower exposure, relative to other economies, to the adverse effects of the conflict in the Middle East, as the United States is a net exporter of energy goods. However, inflation is nevertheless expected to increase. Rising prices, together with more moderate employment growth, are expected to weigh negatively on household consumption. Investment, especially in technology-related sectors, will continue to support growth, alongside tax incentives for investment introduced by the U.S. government. In 2027, the anticipated decline in energy prices and the easing of tariff-related pressures are expected to moderate inflation dynamics, enabling the Federal Reserve to maintain a neutral monetary policy stance.

For the euro area, the impact of higher energy costs, tighter credit conditions, and increasing geopolitical and trade uncertainty are expected to result in a deceleration of GDP growth relative to the previous year (+0.9%, from +1.4% in 2025). Rising inflation is expected to weigh on consumption, also through an increase in precautionary savings. As regards firms, moderate production expectations and heightened uncertainty are likely to reduce investment needs, while elevated energy prices may further erode profit margins. In 2027, the gradual easing of commodity price pressures and the resolution of geopolitical tensions are expected to create conditions for growth to accelerate (+1.2%).

These developments imply heterogeneous dynamics across the major economies. In Germany, following modest growth in 2025 (+0.2%), GDP growth is projected to accelerate over the forecast period (+0.6% and +0.9% in 2026 and 2027, respectively), supported by public consumption expenditure, defence-related investment, and transfers to the private sector. Rising inflation is expected to erode households’ real income and weigh on consumer confidence,

constraining private consumption growth in 2026. In 2027, more moderate price dynamics and easing uncertainty are expected to support a recovery in private consumption. Stronger domestic demand would stimulate imports, reducing the contribution of external demand to GDP growth amid continued export-side difficulties. In France, GDP growth is expected to remain broadly in line with the previous year in 2026 (+0.8%, after +0.7% in 2025), supported by net exports, against a backdrop of subdued private consumption constrained by the impact of higher energy prices on disposable income. In 2027, a recovery is expected (+1.1%), driven by the aerospace sector and increased orders in the defence industry, supporting both investment and net exports. In Spain, GDP growth is projected to remain robust in 2026, albeit slowing over the forecast horizon (+2.4% and +1.9% in 2026 and 2027, respectively, after +2.8% in 2025), largely driven by domestic demand and supported by favourable labour market developments and investment growth.

Among emerging economies, China’s outlook points to a gradual moderation, with GDP growth projected at 4.5% in 2026 and 4.4% in 2027. Consumption is expected to remain weak, constrained by sluggish income growth, unfavourable labour market conditions, elevated precautionary savings, and negative wealth effects stemming from the real estate crisis. Export dynamics remain uncertain due to the conflict in the Middle East and mounting protectionist pressures on Chinese manufactured goods.

In line with the assumptions adopted by major international institutions, this forecasting exercise also assumes a relatively rapid resolution of the conflict as the baseline scenario. Beginning in March, supply-side disruptions associated with the conflict in the Middle East pushed oil prices to nearly double levels recorded in the first two months of 2026 (Figure 1), peaking at USD 120 per barrel in April. Uncertainty regarding the end of hostilities is expected to continue to support elevated crude oil prices in the short term; subsequently, prices are assumed to decline gradually, with timing depending on the normalisation of maritime traffic through the Strait of Hormuz and the repair of damaged extraction and refining infrastructure. For 2026, the average Brent crude oil price is assumed to be USD 93.5 per barrel, followed by a marked decline in 2027 of 12.0% (to USD 82.3 per barrel).

The conflict in the Middle East has also affected natural gas prices, albeit to a lesser extent than oil prices, because gas supply is more dependent on regional infrastructure and local contractual arrangements. Following the 2022 energy crisis, Europe (including Italy) increased storage capacity, diversified suppliers, and reduced industrial consumption. Nevertheless, gas prices rose substantially, particularly in March, before moderating slightly. For 2026, the average natural gas price is projected to increase relative to 2025 (+15.2%, reaching EUR 41.9 per MWh), before returning in 2027 to average levels broadly in line with those prevailing in 2025 (EUR 36 per MWh).

As regards international trade, the effects of the conflict in the Middle East are expected to lead to a marked slowdown in global trade volumes in 2026 (+1.9%, after +4.5% in 2025), followed by a return to stronger growth in 2027 (+3.0%).

In the first months of 2026, the nominal euro–US dollar exchange rate (averaging 1.13 in 2025) appreciated, driven mainly by geopolitical developments (averaging 1.17 US dollars per euro between January and May). Over the forecast horizon, a technical assumption of stability at the average levels recorded in the first four months of 2026 is adopted. This would imply an appreciation of the euro of 3.8% relative to the 2025 average, with no variation projected for 2027.