15 April 2026 | The outbreak of a new conflict in the Middle East has once again disrupted the global economic balance, with effects that are expected to be significant. The war has led to the destruction or damage of key energy infrastructure and imposed severe restrictions on transit along strategic routes, particularly through the Strait of Hormuz; this has resulted in sharp rises in commodity prices and disruptions to global supply chains. Significant impacts on imported inflation are expected, particularly in Europe, where rising price pressures and inflation expectations will influence upcoming monetary policy decisions.
Uncertainty regarding economic policies (Fig. 1) intensified rapidly in March following the outbreak of the conflict but had already risen significantly last year following announcements of restrictions on international trade. The recent ruling by the US Supreme Court has declared the tariffs introduced last year unlawful and requires them to be redefined shortly; consequently, the new tariff regime, due to come into force this summer, is currently uncertain.
Before the war, the global landscape appeared fragmented and with moderate growth. In the United States, growth had slowed in the latter part of 2025, though it remained more dynamic than that of the euro area. China maintained strong production, driven in part by exports despite the tariffs imposed by the United States. In its latest forecasts, the International Monetary Fund has revised downwards its growth estimates for 2026, particularly for emerging economies and the euro area; the risks to the outlook, mainly attributable to geopolitical tensions, are assessed as tilted to the downside.
In 2025, Italian GDP grew by 0.5 per cent, as forecast last year by the Parliamentary Budget Office (UPB). Economic activity was supported by domestic demand, whilst the contribution from foreign trade was negative for the first time since 2023. Growth was weaker than the euro area average, as had already been the case in 2024. The labour market continued to expand, but with signs of a slowdown in the second half of the year. Wages recovered only partially, remaining significantly below the 2020 levels in real terms. Inflation, although rising slightly, remained lower than that of the euro area in 2025. However, last month households’ expectations regarding price trends surged (Fig. 2), reflecting consumers’ fears about the repercussions of the war in the Middle East.
Business confidence held up in March, particularly in construction and market services. Taking other leading indicators into account, the UPB estimates that GDP rose in the first quarter (Fig. 3) by between one and two-tenths of a percentage point on average across the models, but with high margins of uncertainty due to global tensions. The effects of the ongoing conflict are, however, expected to show up in the economic activity data for subsequent quarters.
The impact of the conflict in the Middle East on the Italian economy is difficult to quantify, both because the course of the war is highly uncertain and because the transmission chain of the shocks that have already materialised is subject to various factors. By using the econometric model employed by the UPB (Memo-It), it is possible to simulate scenarios to identify the order of magnitude of the effects on economic activity and prices, compared with expectations prior to the outbreak of the war. In a more favourable scenario, involving a truce leading to a permanent cessation of military hostilities, growth would be lower by a couple of tenths of a percentage point this year, with similar repercussions also in 2027; inflation, on the other hand, would rise, particularly in 2026 (Fig. 4). In a less favourable scenario, involving more persistent tensions over time but without military escalation, GDP could fall by twice as much as in the best-case scenario, in both 2026 and 2027, whilst inflation would rise by a significant margin in 2027 as well.
