The international environment continues to be shaped by geopolitical tensions and trade fragmentation. The resumption of hostilities between the United States and Iran has severely restricted maritime traffic through the Strait of Hormuz (Fig. 1), while Houthi attacks in the Bab el-Mandeb Strait have intensified. Oil and gas prices remain highly volatile and above their levels at the beginning of the year. Nevertheless, global economic activity is showing some resilience to the shocks and continues to expand at a moderate pace; the International Monetary Fund (IMF) projects global GDP growth at 3.0 per cent in 2026 and 3.4 in 2027. In the euro area, inflation rose to around 3.0 per cent in the second quarter, mainly driven by higher energy prices. Central banks continue to adopt a cautious stance; inflation expectations remain anchored, but risks to the inflation outlook are significant.
In the first quarter of 2026, Italian GDP grew by 0.3 per cent quarter on quarter and, according to preliminary Istat data, continued to expand in the spring, albeit at a slightly slower pace (0.2 per cent). Compared with pre-pandemic levels, economic activity in Italy stands about eight percentage points higher, a smaller increase than in Spain (about twelve percentage points) and a slightly larger one than in France and the euro area (Fig. 2).
Italian household consumption strengthened during the winter, supported by the recovery in purchasing power and employment, but may be dampened going forward by accelerating prices and heightened uncertainty. Investment increased in the first months of the year, especially in components benefiting from the acceleration of projects under the National Recovery and Resilience Plan (NRRP). Exports recovered over the winter, although the increase was concentrated in a few highly volatile sectors; in the spring, export flows do not appear to have been significantly held back by tensions in the Middle East. Employment continues to rise, while labour force participation remains weak, particularly among young people. Italian inflation rose to 3.0 per cent in the second quarter (Fig. 3), driven by higher energy prices, before easing slightly in July. Price developments in Italy reacted more rapidly than in the euro area to the shock stemming from the war in the Middle East; as a result, the inflation differential, which had been negative on average over the previous two years, had broadly closed by the spring.
The UPB expects Italian GDP to grow by 0.9 per cent in 2026 and 0.6 per cent in 2027 (Table 1). Compared with the projections prepared in April as part of the endorsement exercise for the Public Finance Document, growth in the Italian economy has been revised upwards by 0.4 percentage points this year, incorporating second-quarter GDP data as well as revisions to the previous quarter. By component, the revision for 2026 reflects the more favourable investments in the first half of the year, supported by the NRRP, as well as temporary factors affecting exports. The GDP growth forecast for 2027 is therefore unchanged. The inflation outlook is also broadly unchanged. Economic activity in 2026 benefits from the final phase of implementation of the Next Generation EU (NGEU) programme, which makes a sizeable contribution to growth that then unwinds in 2027. Risks are predominantly tilted to the downside and relate to geopolitical and trade tensions, volatility in energy and financial markets, the timing of NRRP implementation, and climate and environmental factors.
