Economic Bulletin No. 4 - 2026

16 October 2026

Global growth is proving more resilient than expected, although it remains exposed to significant risks

Global economic activity has continued to benefit from investment in artificial intelligence (AI), which has helped to mitigate the effects of higher energy prices. Domestic demand remains robust in the United States, while growth in China is supported by exports. Excluding energy, global trade growth appears to have remained strong, fuelled by demand for AI-related goods. The ongoing tensions in the Middle East, uncertainty about US trade policies, and tighter financial conditions across the main economies continue to weigh on the outlook for global growth. In September, the Federal Reserve and the Bank of Japan raised their policy rates by 25 basis points.

Tensions persist on energy markets and sovereign yields continue to rise

Supply conditions on energy markets remain tight. Oil prices began to rise again in the summer months, standing at over $100 per barrel in early October; natural gas prices have reached new highs since the beginning of the conflict in the Middle East. Refining margins have widened too, a factor in pushing up fuel prices. Long-term government bond yields have increased, reflecting heightened inflationary risks, concerns about developments in public finances, and large bond issuance in the technology sector. Equity prices rose further, supported by strong corporate results. However, equity valuations remain at historically high levels, and there are still correction risks.

Growth remains moderate in the euro area

Euro-area GDP, net of the fluctuations in economic activity in Ireland, increased by 0.3 per cent in the second quarter, buoyed by foreign demand and household consumption. Based on our estimates, GDP growth continued at a moderate pace in the summer months, driven by services. Inflation rose owing to higher energy prices, with no signs of a pass-through to the non-energy components so far. According to the September ECB staff projections, euro-area GDP will grow by 0.9 per cent in 2026, with inflation standing at 3.0 per cent. In September, the ECB raised its key interest rates again by 25 basis points, bringing the deposit facility rate to 2.5 per cent.

Economic activity continued to expand in Italy

GDP grew by 0.2 per cent in the second quarter, driven by household consumption and investment. In the summer months, economic activity is estimated to have slowed slightly, reflecting international tensions and higher energy costs. Investment in the digital and energy transition and in tourism appear to have made a positive contribution to GDP growth. According to our October projections, GDP will grow by 0.9 per cent in 2026, 0.7 per cent in 2027 and 0.8 per cent in 2028.

Labour market conditions remain favourable overall

Employment grew in the second quarter, especially in private services, while it does not appear to have changed substantially in the third quarter. Both in the spring and summer months, the increase in labour market participation led to a rise in the unemployment rate, which nevertheless is still low. Wage growth slowed and is expected to be moderate in late 2026 too.

Higher energy prices have pushed up inflation

Consumer price inflation rose in the summer months, driven by higher fuel prices, and increasingly by gas and electricity tariffs. Core inflation edged up. According to our October projections, consumer price inflation will rise to 3.2 per cent on average in 2026, and then fall to 2.4 per cent in 2027 and to 1.7 per cent in 2028.

Credit dynamics strengthened over the summer

Lending to firms rose, though only for medium-sized and large firms, partly in response to the greater liquidity needs associated with higher energy prices. Loans to households increased as well. The cost of new loans to firms went up, while that of new mortgage loans held stable. Credit standards were eased slightly for firms and remained unchanged for mortgage loans to households in the second quarter.

The public deficit is projected to decline in 2026, and public debt to continue to rise

According to the Public Finance Planning Document approved by the Italian Government on 2 October, net borrowing is set to fall to 2.9 per cent of GDP in 2026. It is projected to rise to 3.4 per cent in 2027, mainly due to the higher spending on energy security and defence associated with the activation of the national escape clause under the European governance framework. The debt-to-GDP ratio is projected to reach 138.5 per cent in 2027, before starting to decline.

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