Bank of Italy trims 2027 growth forecast, warns of higher inflation

Italy’s central bank sent a cautious signal on the country’s recovery, keeping its 2026 growth forecast at 0.6% while trimming its 2027 outlook to 0.4% from 0.5%. At the same time, it warned that inflation could rise more sharply than previously expected, a combination that leaves Europe’s third-largest economy facing weaker momentum and less room to absorb higher prices.

The updated forecast points to a familiar problem for Italy: growth remains too fragile to build much speed into the medium term. Weak domestic demand, higher energy prices and geopolitical risks were cited as the main reasons for the softer 2027 outlook. By holding the near-term projection steady but cutting the following year, the Bank of Italy signaled that the economy may avoid a sudden setback, but not generate the kind of expansion needed for a stronger recovery.

The inflation warning matters as much as the growth downgrade. If prices rise faster while output stays subdued, Italian households face pressure on both sides of the ledger. Wages and activity would remain soft even as everyday costs climb, narrowing disposable income and making it harder for consumption to lead the economy forward. For a country that has struggled for years to sustain robust growth, that mix raises the risk of another period of stagnation rather than durable expansion.

There is also a fiscal dimension. Slower growth can weaken tax revenues and complicate debt reduction, a particularly sensitive issue in a country with heavy public borrowing needs. Italy’s revised outlook fits into a broader European concern that energy shocks and conflict-related uncertainty are still distorting business planning and government forecasts, even after the sharp inflation waves of recent years began to ease.

For the European Central Bank, the Italian numbers add to the debate over how restrictive policy should remain. Weak growth in one of the euro area’s biggest economies can influence the bloc-wide discussion over interest rates and financial conditions, especially if inflation pressures prove stickier than expected. The latest forecast leaves Italy in a narrow corridor: recession is not the baseline, but neither is there much evidence of a stronger acceleration ahead.