Bank of Italy's Economic Forecast: Moderate Growth Expected Through 2028

The Bank of Italy has confirmed its GDP growth estimates for the current and upcoming years, making slight upward adjustments for 2027. Macroeconomic forecasts suggest a strengthening of product growth from the current quarter, driven by domestic demand. The average annual GDP expansion is projected at 0.6 percent in 2025 and 2026, 0.8 percent in 2027, and 0.9 percent in 2028.

GDP Growth Projections

The minor adjustment for 2027, up from +0.7% in the October document, is primarily due to increased consumer spending and controlled inflation.

The projections indicate a steady, if moderate, economic expansion over the next few years.

Factors Influencing Growth

Several factors are expected to influence Italy's economic performance, including domestic demand, consumer behavior, and the implementation of EU regulations.

Inflation Outlook Revised

A one-year delay in the implementation of EU norms on the Ets2 emissions quota system has led the Bank of Italy to revise its inflation estimates downward.

Here's a summary of the revised inflation forecasts:

Let's examine the inflation rates over the coming years:

The harmonized index of consumer prices is projected at 1.7 percent in 2025, 1.4 percent in 2026, and then rising to 1.6 percent in 2027 and 1.9 percent in 2028. This increase in 2028 is attributed to the implementation of the new EU emissions trading system, which will temporarily increase energy prices.

Impact of ETS2 Delay

Compared to October forecasts, inflation estimates are 0.1 percentage points lower in 2026 and 0.3 lower in 2027 due to the Ets2 delay. Inflation excluding energy and food is estimated at 1.9 percent this year, decreasing to 1.6 percent in the next three years, reflecting moderate wage pressures and a modest productivity recovery.

Consumer Spending and Investment

The Bank of Italy anticipates a gradual acceleration in household consumption, driven by increased purchasing power and reduced uncertainty. Investments are expected to continue expanding, albeit at a slower pace, benefiting from Pnrr measures and improving demand conditions.

Below is a breakdown of factors affecting consumer spending and investment:

Trade Dynamics

Exports are projected to grow slower than foreign demand this year and next, affected by trade policy tightening and loss of competitiveness due to the euro's appreciation, before accelerating in 2027-28. Imports are expected to increase throughout the next four years, primarily driven by demand for capital goods.

Here are the trade projections:

The contribution of net foreign demand to product growth is negative this year and next, and nearly zero on average in 2027-28. The current account balance is estimated to increase to 1.3 percent in 2025 and remain stable for the next three years.

Detailed Economic Indicators

For a clearer understanding, here's a table summarizing key economic indicators and their projected changes:

Impact of External Factors

External factors, such as trade policies and the value of the euro, are expected to play a significant role in Italy's economic performance.

The following table shows the possible impact of the external factors.

Summary of Key Projections

GDP Growth

• 2025 and 2026: 0.6%
• 2027: 0.8%
• 2028: 0.9%

Inflation

• 2025: 1.7%
• 2026: 1.4%
• 2027: 1.6%
• 2028: 1.9%

Trade Balance

• Current Account Balance stable at 1.3% from 2025-2028