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ROME – Istat forecasts Italy's GDP to grow by 0.6% in 2025 and 0.8% in 2026, driven by domestic demand, alongside moderate inflation and rising employment levels. On Friday, 6 June 2025, the Italian National Institute of Statistics (Istat) released data and insights regarding the outlook for the Italian economy for the 2025-2026 period. Italy's Gross Domestic Product is expected to expand by 0.6% in 2025 and 0.8% in 2026, following a 0.7% increase over the previous two years. During this forecast biennium, GDP growth is projected to be sustained entirely by domestic demand net of inventories (+0.8 and +0.9 percentage points respectively), while net foreign demand is set to provide a negative contribution in both years (-0.2 and -0.1 p.p.). According to Istat, the forecast for net foreign demand accounts for an expected easing in the latter half of 2025 of the uncertainty surrounding U.S. trade policy. Nevertheless, a negative impact from tariffs on global trade and international growth prospects is assumed.
Employment, measured in terms of labour units (AWU), shows an increase
Private consumption is expected to continue growing at moderate yet stable rates (+0.7% in both years), supported on one hand by ongoing wage and employment growth, but hampered on the other by an increased propensity to save. Investment growth in 2025 (+1.2%), accelerating from +0.5% in 2024, is likely to be boosted by the strong performance recorded in the first quarter, before seeing a further slight acceleration in 2026 (+1.7%) to coincide with the final phase of the PNRR (National Recovery and Resilience Plan). Employment, measured in labour units (AWU), is projected to rise at a higher rate than GDP (+1.1% in 2025 and +1.2% in 2026), albeit decelerating compared to previous years; this will be accompanied by a further decline in the unemployment rate (6.0% this year and 5.8% in 2026). Following the price hikes seen between late 2024 and early 2025, inflation dynamics are expected to moderate throughout the year, favoured by falling energy prices and weakening demand prospects.
Uncertainty fuelled by constant shifts in U.S. trade policy
The increase in the residential household consumption deflator in 2025 is expected to align with these trends (+1.8%), with a further slight reduction in 2026 (+1.6%). The international economy is slowing down, penalised by high uncertainty linked to global trade. In 2024, global economic growth (+3.3%) was bolstered by better-than-expected momentum in China and a consistently robust performance in the United States of America. Within the forecast horizon, however, a deceleration is expected for the global economy, followed by substantial stabilisation the following year (+2.9% in 2025 and +3.0% in 2026). This trend is hampered by uncertainty fuelled by constant shifts in U.S. trade policy and intense geopolitical tensions. Although global trade showed resilient dynamics in the first quarter of 2025—driven partly by the anticipated imposition of tariff restrictions which prompted countries to front-load trades—expectations of a sharp deceleration prevail for the remainder of the year.
Exports and fiscal and monetary stimuli
The latest European Commission forecasts estimate a significant slowdown in the volume of global trade in goods and services for 2025 (+1.8% down from +2.9% in 2024), followed by a partial recovery in 2026 (+2.2%). The prospects of an international economic slowdown are also exerting downward pressure on energy commodity prices (further fuelled by an increase in supply). Based on the latest available data, major economies recorded mixed performances in the first quarter of 2025. In China, GDP grew by 1.2% on a quarterly basis (down from +1.6% in the previous three months), thanks to the strong performance of the industrial sector, exports, and fiscal and monetary stimuli. However, slowing domestic demand in China and uncertain trade prospects are expected to weaken the country's growth outlook.
In the Eurozone, GDP dynamics in the first quarter of 2025 signal an acceleration
In the U.S., for the first time in three years, GDP showed a slight decline in the first quarter (-0.1% on a quarterly basis, down from +0.6% in the previous period), primarily driven by a sharp surge in imports. The historically unprecedented increase in import tariffs, combined with significant uncertainty fuelled by trade policy, could negatively impact household consumption and investment decisions in the coming months. Consequently, a slowdown of the American economy is forecast for the current year (+1.6%, down from +2.8%), with the growth rate expected to stabilise in 2026. In the Eurozone, GDP dynamics in the first quarter marked an acceleration (+0.4% in quarterly terms, up from +0.2% in the preceding three months). Looking at national details, increases were recorded in both Germany (+0.4% following -0.2% in the previous quarter) and France (+0.1% after the -0.1% recorded in late 2024); meanwhile, economic activity in Spain maintained rates above the average (+0.6%, from +0.7% in the fourth quarter of 2024).
Euro to Dollar exchange rate facing high volatility
According to European Commission forecasts, economic activity in the Eurozone will experience growth in 2025 equal to that of the previous year (+0.9%), followed by an acceleration in 2026 (+1.4%). However, trends appear heterogeneous across countries: in Germany, after two consecutive years of recession, GDP growth is expected to remain flat in 2025 before rebounding to 1.1% in 2026; in France, the expansion rate is set to halve this year (+0.6%, from +1.2%) before recovering in 2026 (+1.3%); finally, in Spain, GDP is expected to show a downward trend (+2.6% and +2.0% in 2025 and 2026 respectively, from +3.2% in 2024). Regarding the international exogenous variables used for Istat’s current forecasts, the Euro-Dollar exchange rate exhibited high volatility in the first five months of 2025, primarily due to persistent and elevated uncertainty.
Downward pressure on oil prices
A technical hypothesis has been adopted for 2025 and 2026, projecting average May prices across the entire forecast period; this results in a progressive appreciation of the Euro against the Dollar. As for key energy commodities, expectations of weaker global demand, combined with OPEC+'s decision to increase oil production starting from June, are exerting downward pressure on both oil and natural gas prices, contributing to lower global inflation expectations. For Brent crude oil prices—which averaged $80.5 per barrel in 2024—a technical hypothesis of price invariance is assumed, based on the average price in May 2025 for the second half of 2025 and all of 2026. This results in a value of $67.7 per barrel this year and $65 in 2026.
Gross fixed capital formation represents the most dynamic component of domestic demand
Economic outlook in early 2025 and forecasts for the Italian economy: In the first quarter of 2025, following weak dynamics in the second half of the previous year, GDP grew by 0.3% on a quarterly basis (+0.7% year-on-year). This was the result of positive contributions from both domestic demand net of inventories (+0.4 p.p.) and net foreign demand (+0.1 p.p.), while inventories provided a negative contribution (-0.3 p.p.). Gross fixed capital formation was the most dynamic component of domestic demand (+1.6% on a quarterly basis) in the first quarter of 2025; household and NPISH (Non-Profit Institutions Serving Households) consumption expenditure also saw slight growth (+0.2%), contrasted by a decline in public administration spending (-0.3%). On the supply side, the first quarter of 2025 recorded positive quarterly changes in value added within industry (+1.2%) and agriculture, while services showed a slight decrease (-0.1%).
Insights from business and consumer confidence surveys
Within the industrial sector, construction dynamics appeared slightly more buoyant (+1.4%) compared to the rest of the segment (+1.1%). Among services, a strong expansion in artistic and entertainment activities emerged (+2.3%); conversely, financial and insurance activities (-1.4%) and real estate (-0.9%) experienced a contraction. During the first four months of 2025, data from consumer and business confidence surveys highlighted a progressive deterioration in sentiment, particularly regarding economic evolution, which was only partially offset by an improvement in May. For consumers, the general index in May showed a lower level than in January (-1.7 percentage points); among the indicator’s components, the decline is most evident in the economic climate (-3.8 p.p.) and the future outlook (-2.4 p.p.), while the personal climate (-1.0 p.p.) and current climate (-1.2 p.p.) proved more resilient, reflecting the high uncertainty surrounding the international scenario.
Weakening business and consumer sentiment
Among businesses (IESI index), the erosion of confidence appears broader (-2.4 percentage points difference between January and May), yet highly heterogeneous across various sectors: the most significant downturn was recorded in market services (-4.3 percentage points) and retail trade (-3.3 p.p.), with less pronounced declines in construction (-2.0 p.p.) and a slight dip in manufacturing (-0.2 p.p.). In the latter sector, however, during the same timeframe, assessments of current production (-0.4 absolute difference in balances) and expected production (-1.4), as well as future orders (-1.8) and, crucially, economic prospects (-5.0), remain less positive than those prevailing at the start of the year. This weakening of business and consumer sentiment was largely influenced by the high uncertainty triggered by successive announcements regarding the imposition of international trade tariffs.
Recovery of wages and employment
However, Italy's foreign trade appears to have benefited not only from long-standing contracts in the shipbuilding sector but also from an "anticipatory effect": the imminent imposition of tariff restrictions may have accelerated both inbound and outbound transactions in the first quarter of 2025 (+2.6% and +2.8% quarterly change for imports and exports of goods and services, respectively). In the forecast scenario, these tensions—though expected to gradually subside in the second half of 2025—would continue to negatively impact the economic cycle, with more pronounced repercussions on investment and foreign trade and, to a lesser extent, on household consumption. The latter would continue to benefit from the recovery of wages and employment on one hand, while being hampered by uncertainty regarding the cycle's evolution and the consequent increase in the propensity to save on the other.
Driven by Transition 5.0 plan contributions
For 2025, investment growth—following a strong performance in the first quarter—is expected to be adversely affected by weakening domestic and foreign growth prospects, despite recording an annual average increase compared to 2024. In 2026, investment growth is set to strengthen, partly driven by contributions from the "Transition 5.0" plan and the implementation of investments envisaged by the PNRR (National Recovery and Resilience Plan), which concludes in 2026, although both measures are facing implementation delays. Further stimulus could stem from the recent reduction in interest rates by the ECB. The moderate trend in consumption and solid labour market conditions are not expected to impact inflation dynamics, which should remain aligned with Central Bank targets, further benefiting from the projected slowdown in the energy component over the two-year period (as well as the appreciation of the Euro).
2026: Greater momentum in imports compared to exports
Any potential resurgence of inflation remains, however, subject to exogenous risks linked to global scenario developments. In 2025, GDP is projected to grow (+0.6%), driven exclusively by domestic demand which, net of inventories, would contribute positively by 0.8 percentage points, while net foreign demand is expected to provide a slightly negative contribution (-0.2 p.p.). The expansionary phase of the Italian economy is forecast to accelerate slightly in 2026 (+0.8%), in line with a strengthening international cycle; here too, the contribution will come from domestic demand net of inventories (+0.9 p.p.). Indeed, the recovery of foreign trade in 2026 will see greater momentum in imports compared to exports—as announced by the National Institute of Statistics—confirming a slightly negative contribution (-0.1 p.p.) from net foreign demand. In this scenario, the trade balance surplus is expected to remain positive in both 2025 (2.2% as a percentage of GDP) and 2026 (+2.0%).
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