Italian GDP Growth Slows to 0.7% Forecast for 2026 After Years of Post-Pandemic Deceleration

Italian gross domestic product is projected to expand by 0.7% in 2026 and again in 2027, according to Istat's June 2026 outlook — a modest acceleration from the 0.5% recorded in 2025, but a far cry from the double-digit rebound that followed the pandemic. The trajectory underscores a structural deceleration that has defined Italy's economic path since 2022.

For investors and policymakers alike, the pattern matters: Italy is the eurozone's third-largest economy, and its persistent underperformance relative to pre-pandemic peers raises questions about fiscal sustainability, industrial competitiveness and the effectiveness of recovery funds in generating durable growth.

What happened

Italy's GDP growth has followed a clear downward arc since the post-pandemic surge. After the sharp rebound of the early 2020s, annual growth settled at 0.7% in 2024, according to Istat's annual national accounts published on 22 September 2026 — a figure confirmed after a general revision of the national accounts series covering 2010–2025. GDP at current prices reached 2,199,619 million euro in 2024, a rise of 2.7% in nominal terms.

In 2025, growth slowed further to 0.5%, with the fourth quarter of 2025 delivering a sequential gain of 0.3% and a year-on-year increase of 0.8%, according to Istat's preliminary GDP estimate. The most recent quarterly reading, for Q2 2026, showed GDP rising 0.2% quarter-on-quarter and 1.0% year-on-year, with the economy on track for the full-year 0.7% projection.

• 2024: GDP chained volume growth of 0.7%; nominal GDP 2,199,619 million euro (Istat, 22 September 2026)
• 2025: GDP growth of 0.5%; Q4 2025 up 0.3% quarter-on-quarter and 0.8% year-on-year (Istat preliminary estimate)
• Q2 2026: GDP up 0.2% quarter-on-quarter, 1.0% year-on-year (Istat, 5 October 2026)
• 2023: GDP at current prices of 2,128,001 million euro; chained volume growth of 0.7% (Istat annual accounts, September 2024)

What are the main drivers and drags?

Istat's June 2026 outlook identifies domestic demand — excluding inventories — as the sole positive engine of growth over the 2026–2027 forecast horizon, contributing +0.9 percentage points in 2026 and +0.5 percentage points in 2027. Net foreign demand, by contrast, is expected to subtract 0.2 percentage points from growth in 2026, dragged lower by the conflict in the Middle East and the resulting surge in energy prices, before turning neutral in 2027.

Household consumption is projected to decelerate in 2026 relative to 2025. Istat's Q2 2026 data showed that household income rose more slowly than consumption, compressing the savings rate — a sign that Italian families are drawing down buffers to sustain spending rather than benefiting from genuine income gains. The European Commission, in its May 2026 forecast, attributed the consumption slowdown to a loss of purchasing power driven by higher energy costs, projecting inflation at 3.2% for 2026 before a retreat to 1.8% in 2027.

Investment has received some support from disbursements under Italy's National Recovery and Resilience Programme (NRRP). Both the European Commission and the OECD, in their June 2026 assessments, cited NRRP-fuelled investment as a partial offset to the energy shock, though neither institution viewed it as sufficient to lift growth materially above the 0.5–0.7% range in 2026.

How is industry performing?

Italy's industrial sector has been a persistent weak spot. In June 2026, the seasonally adjusted industrial production index fell 1.0% month-on-month, according to Istat, while the calendar-adjusted index declined 0.6% year-on-year. The second quarter of 2026 as a whole posted a modest sequential gain of +0.4%, offering limited relief after two consecutive months of decline.

Over the seven months to September 2026, industrial production growth was limited to 0.4%. Pharmaceuticals and electronics performed relatively well, while chemicals and machinery contracted; excluding energy, manufacturing output was down year-on-year. The eurozone-wide industrial picture has also deteriorated, with euro area industry facing headwinds from higher energy costs even before their full pass-through, adding an external dimension to Italy's domestic manufacturing challenges.

Where do forecasters diverge?

The three main institutional forecasters — Istat, the Bank of Italy and the European Commission — broadly agree on the direction of Italian GDP growth but differ on the precise pace. Istat's June 2026 projection stands at 0.7% for 2026; the European Commission's May 2026 forecast puts growth at 0.5%, in line with 2025; the OECD, also in June 2026, aligned with the Commission at 0.5% for 2026, rising to 0.6% in 2027.

The Bank of Italy, in its June 2026 Eurosystem staff projections, described GDP growth as set to "remain subdued both this year and the next," with a strengthening expected only in 2028.

An earlier Bank of Italy note from April 2026 flagged that the baseline scenario was "largely conditioned on the future evolution of the ongoing conflict in the Middle East" and the assumptions for commodity prices, which it characterised as carrying "high uncertainty." An alternative scenario modelling an escalation of the conflict was prepared for illustrative purposes, pointing to potentially sharper downside risks.

The Bank of Italy's October 2025 projections had been more optimistic, pencilling in growth of 0.6% for both 2025 and 2026, driven by consumption and NRRP-linked investment, before the renewed energy price shock altered the outlook.

Why it matters

Italy's fiscal position amplifies the stakes of any growth shortfall. The European Commission projects the government deficit to narrow from 3.1% of GDP in 2025 to 2.9% in both 2026 and 2027 — just below the EU's 3% ceiling — while the public debt ratio is set to rise further to 139.2% of GDP in 2026. A prolonged period of sub-1% growth makes debt stabilisation arithmetically harder and leaves less room for fiscal manoeuvre.

The FTSE MIB (INDEX:FTSEMIB) and the EUR/USD exchange rate are sensitive to shifts in Italy's growth and fiscal outlook, given the country's weight in eurozone sovereign debt markets and its role as a bellwether for peripheral European risk. Weak industrial data and downward revisions to growth forecasts have historically widened Italy's spread over German Bunds, raising borrowing costs across the public and private sectors.

What to watch next

• Q3 2026 GDP preliminary estimate (Istat): The next quarterly flash reading will test whether the 0.2% sequential pace of Q2 2026 is sustained or deteriorates further amid ongoing energy price pressure.
• Full-year 2026 outturn vs. forecasts: Istat projects 0.7%, the European Commission 0.5%, and the OECD 0.5% — the gap will be resolved by year-end data releases in early 2027.
• Middle East conflict trajectory: Both the Bank of Italy (April and June 2026) and Istat (June 2026) identify the conflict and its energy price consequences as the primary risk to the baseline; any escalation scenario carries material downside for Italian GDP.
• NRRP disbursement pace: The speed at which Italy draws down National Recovery and Resilience Programme funds remains a key upside variable, cited by the European Commission, the OECD and the Bank of Italy as the main domestic growth support.
• Inflation and real wages: The OECD warned in June 2026 that the energy price surge risks "unwinding recent gains in real wages"; a reversal of this dynamic in 2027, as energy prices retreat, is central to the consensus recovery scenario.