Italy Forecasts 2027 Economic Growth of 0.6% as Inflation Slows Consumption

Italy’s official statistics agency expects the country’s growth rate to slow next year, with gross domestic product projected to expand by 0.6% in 2027 after a 0.9% increase in 2026. The latest forecast from ISTAT points to an economy that is still growing, but at a more subdued pace as higher prices weigh on households and investment loses some of the support it enjoyed earlier in the cycle.

The updated outlook also implies only a modest improvement from this year. ISTAT said GDP rose by 0.6% in 2025 and noted that output in the third quarter of 2026 was unchanged from the previous three months, a sign that momentum has already cooled. Even so, the agency still expects domestic demand, excluding inventories, to provide the main support to activity over the next two years.

Domestic demand remains the main support

According to ISTAT’s November forecast, domestic demand excluding inventories is expected to contribute 1.2 percentage points to growth in 2026 and 0.6 percentage points in 2027. Net external demand is seen contributing nothing this year and only slightly positively next year. That mix helps explain why the headline GDP figure can remain positive even as the pace of expansion slows and the manufacturing side of the economy stays under pressure.

Household and non-profit institutions serving households consumption is still expected to grow, but more slowly than in 2025. ISTAT forecast growth in that category of 1.0% in 2026 and 0.6% in 2027, down from 1.2% last year. The agency tied that deceleration to the sharp rise in prices, which is eroding real purchasing power even though nominal gross wages per capita are still increasing.

Those forecasts suggest the consumer sector is not collapsing, but it is no longer offering the same level of support that it did when inflation was lower. ISTAT said spending should continue to be helped by a drawdown of savings and by a labor market that remains relatively firm. Even so, the price backdrop means a larger share of household income is being absorbed by everyday costs, leaving less room for a broad acceleration in real consumption.

Employment is still expected to improve, which should limit the downside for domestic demand. Full-time-equivalent employment is forecast to rise by 0.9% in 2026 and 0.5% in 2027, after a 1.2% gain in 2025. The unemployment rate is seen edging down to 6.0% this year and 5.9% next year from 6.1% in 2025. That combination of slower hiring but slightly lower unemployment fits an outlook in which the economy keeps expanding, yet does so with less momentum than before.

Investment slows as stimulus fades and uncertainty stays high

A second drag on the 2027 outlook comes from capital spending. Gross fixed capital formation is expected to increase 2.9% in 2026 and then slow sharply to 1.0% in 2027, following 3.9% growth in 2025. ISTAT attributed much of that moderation to the scaling back of public stimulus measures under current legislation, especially as the strongest effects of projects tied to Italy’s National Recovery and Resilience Plan fade.

The report breaks that trend down further. Housing investment is expected to keep declining, while non-residential buildings and infrastructure projects should continue to benefit from measures that are still underway, though to a lesser degree than before. Spending on plant, machinery, equipment and intellectual property is expected to remain positive, but higher uncertainty and weaker financing conditions are likely to curb businesses’ willingness to commit to larger projects.

That caution already appears consistent with recent activity data. In the first half of 2026, investment was the strongest component of demand, rising 4.1% from a year earlier, ahead of the 1.0% gain in consumption. By the third quarter, however, output was flat on the previous quarter, and manufacturing continued to show signs of weakness. Industrial production in manufacturing rose in September after falling in August, but the average for the third quarter still pointed lower. Industrial turnover volumes also weakened on both the domestic and export markets.

Foreign trade remains a relative bright spot, though not enough to offset every domestic restraint. Exports of goods and services are projected to rise 3.0% in 2026, while imports are expected to increase 3.3%. ISTAT said international trade has held up better than might have been expected given geopolitical tensions, but it also warned that the second half of the year should be less dynamic. A slower global environment would leave Italy relying even more heavily on domestic demand at a moment when consumption and investment are both decelerating.

Higher inflation and energy costs cloud the 2027 outlook

The inflation path is central to the forecast. ISTAT said the household expenditure deflator, which rose 1.5% in 2025, is expected to average 3.3% in 2026 before easing to 2.8% in 2027. That is still a significant improvement from this autumn’s sharper price spike, but it remains high enough to restrain real household spending and put pressure on margins for energy-intensive businesses.

The agency said inflation accelerated noticeably in September and October. Italy’s harmonized index of consumer prices rose 4.2% year over year in September and then 5.6% in October on a preliminary basis, after averaging 3% over the previous five months. Rising commodity prices on international markets, particularly in energy, played a central role in that shift and shaped ISTAT’s assumptions for the next year.

Those assumptions help explain why the outlook changed from the previous round of forecasts published in June. At that time, ISTAT expected GDP growth of 0.7% in both 2026 and 2027. In the November update, the 2026 growth estimate was revised up by 0.2 percentage point, while the 2027 forecast was trimmed by 0.1 point. Oil price assumptions were revised higher for both years, and the projected household expenditure deflator was revised up by 0.4 percentage point for 2026 and 0.8 point for 2027.

Not every revision was negative. Export and import forecasts were both revised higher, and investment also came in stronger than earlier expected during 2026. Still, the broader picture is one of an economy facing more friction as public support fades and higher energy costs work through both consumers’ budgets and corporate plans. ISTAT also said downside risks remain prominent, including the possibility that persistent geopolitical tensions could reignite inflation through supply disruptions and logistics bottlenecks.

Another source of risk sits outside Italy. The report said global growth has been resilient, helped partly by strong investment in technology and artificial intelligence, but it warned that activity remains uneven across countries and sensitive to geopolitics, high public debt and trade tensions. For Italy, that means the external environment may continue to support exports, yet it may just as easily amplify inflation and caution if energy markets tighten again or if trade routes face renewed disruption.

For policymakers and investors, the forecast does not point to recession. It does, however, describe a more constrained 2027 in which the economy is expected to keep expanding while households, manufacturers and investors all operate with less room for error. The next test for that view will come as Italy releases more inflation, industrial and labor-market data over the coming months, which should show whether the late-2026 price surge begins to ease or continues to hold back demand.