Economic Bulletin No. 2 - 2026

17 April 2026

The war in the Middle East is worsening the global economic outlook

The conflict in the Middle East has aggravated an already fragile international scenario. The closure of the Strait of Hormuz, a crucial focal point for the global supply of natural gas, oil and other essential raw materials, has led to a sharp increase in energy prices. Consumer price inflation in the euro area and in the United States was affected as early as March. Sovereign yields and risk premiums rose, equity prices fell and the dollar appreciated against the major currencies.

Uncertainty remains high

The difficulties in predicting the consequences of the conflict have heightened the risk of market corrections, adding to those stemming from potentially lower profitability expectations for the technology sector. The risk of a slow and partial restoration of supply chains and the rising insurance and shipping costs make a swift return of energy prices to pre-conflict levels unlikely, and weigh on the global economic outlook.

Economic activity slows in the euro area

The euro-area economy decelerated in the fourth quarter of 2025 and in the first few months of 2026. The conflict made the outlook worse and more uncertain. According to the March ECB staff projections, euro-area GDP is projected to grow by 0.9 per cent in 2026, and by 1.3 per cent per year in each of the following two years. Consumer price inflation is expected to rise to 2.6 per cent this year and then to stabilize close to the 2 per cent target over the next two years. In an unfavourable scenario, inflation could exceed 4 per cent in 2026-27, while economic growth is projected to decline to about half a percentage point this year, before gradually picking up in the following two years.

Economic activity in Italy expands at a moderate pace

Italy's GDP increased in the fourth quarter; housing investment continued to grow, while household consumption slowed. According to our estimates, GDP continued to expand in the first quarter of this year, albeit at a slow pace. In our April projections, Italy's GDP is projected to grow by 0.5 per cent both this year and the next, and by 0.8 per cent in 2028. In an adverse scenario, prepared for illustrative purposes, protracted hostilities in the Middle East could dampen growth by about half a percentage point this year and by 1 point next year compared with the baseline scenario.

The current account surplus decreases

Export volumes declined and the current account surplus narrowed in the last quarter of 2025. In January and February, exports went up, also benefiting from the boost to services generated by the Winter Olympics. The rise in imported energy prices will lead to a deterioration in Italy's energy balance.

Employment increases, but labour market participation decreases

Headcount employment increased and the unemployment rate declined further in the winter months. Labour market participation decreased, except for older workers. Wage growth in the non-farm private sector remained low.

Inflation will increase in the short term

Inflation in Italy remained below the euro-area average in the first quarter of the year. The conflict in the Middle East led to a marked increase in fuel prices in the first weeks of March, but has not yet affected electricity and gas tariffs. The impact of higher energy prices on the consumer price index will become apparent in the coming months. According to our projections, consumer price inflation is expected to rise to 2.6 per cent in 2026, before returning to below 2 per cent in the following two years. In the adverse scenario, inflation is projected to rise to 4.5 per cent this year, to 3.3 per cent in 2027 and to 2.2 per cent in 2028.

The rise in market rates following the start of the conflict could affect financing conditions for households and firms

Lending rates for firms declined slightly between November and February, while those for mortgage loans edged up. Banks' credit standards remained stable and demand for loans increased. If the rise in market rates observed after the outbreak of the war were to persist, it could tighten financing conditions and curb demand for loans.

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