Economic Bulletin No. 3 - 2026

The resumption of hostilities between the United States and Iran has sparked renewed tensions on energy markets.

Energy commodity prices rose again in July, after the announcement of a memorandum of understanding on 14 June had helped ease the upward pressures in the markets. Oil and natural gas prices have declined compared with the peaks reached in March and April, but remain higher than in the weeks prior to the outbreak of the conflict. Since mid-April, equity prices have recouped the losses recorded in previous weeks, driven above all by AI-related sectors, while sovereign yields have risen in anticipation of a tightening of monetary policy. The dollar has appreciated against the main currencies.

Global growth continues, but remains exposed to significant risk factors.

In the United States, economic activity continues to be supported by investment in AI-related technologies and by private consumption, despite higher input cost pressures and deteriorating household confidence. In China, exports continue to drive growth, while domestic demand remains weak. World trade grew faster than expected in the first quarter, buoyed by demand for AI-related goods; it is expected to slow in the second half of the year, affected by the supply chain tensions linked to the conflict in the Middle East. Uncertainty over the content, timing and implementation of a deal between the United States and Iran continues to weigh on the global growth outlook and on international trade.

Rising energy prices are putting upward pressure on inflation in the main economies. The Federal Reserve and the Bank of England have kept their policy rates unchanged, while the Bank of Japan has raised them. There are still risks of financial market corrections, stemming from an underestimation of the consequences of higher energy prices, from tighter financial conditions and from overly optimistic expectations for profitability in the technology sector.

The Middle East crisis has worsened the outlook for growth and inflation in the euro area.

In the first three months of the year, euro-area GDP grew at the moderate pace of the previous quarters (0.3 per cent), net of the exceptional fluctuations in economic activity in Ireland. Hostilities in the Persian Gulf had a negative impact on GDP in the spring months, resulting in modest growth according to our estimates. The contribution of the service sector to growth appears to have slackened considerably, while that of manufacturing activity appears to be positive. The June Eurosystem staff projections revised euro-area GDP growth downwards, to 0.8 per cent in 2026, 1.2 per cent in 2027 and 1.5 per cent in 2028, while still contemplating alternative scenarios. The projections were revised upwards for consumer price inflation, which is estimated to rise to 3.0 per cent in 2026, then fall to 2.3 per cent in 2027 and return to the target of 2.0 per cent in 2028.

The ECB has raised its key interest rates.

At its June meeting, the ECB Governing Council increased its key interest rates by 25 basis points in response to the inflationary pressures generated by the crisis in the Middle East. Between February and May, the cost of new loans to firms and of new mortgage loans increased slightly. Growth in lending to firms strengthened, driven by short- and medium-term loans. Growth in lending to households remained stable.

The Italian economy grows in the first quarter, but appears to have slowed in the second.

During the winter months, GDP continued to expand at a moderate pace (0.3 per cent), exports of goods and services rose, investment increased further and consumption accelerated. However, capital formation appears to have softened and household consumption to have slowed in the spring, amid the conflict in the Middle East. According to our June projections, GDP growth will remain muted in the baseline scenario: adjusting for calendar effects, GDP is estimated to rise by 0.5 per cent in 2026, 0.4 per cent in 2027 and 0.9 per cent in 2028. Taking into account the better-than-expected growth in the first quarter, GDP is estimated to rise by 0.6 per cent this year. These projections reflect surging energy prices and high geopolitical uncertainty.

According to our estimates, goods export volumes held broadly stable in April and May, despite falling sales in the Middle East. The surge in energy prices will cause Italy’s energy deficit to widen.

Labour market conditions remain positive overall.

Employment rose in the first quarter of the year and over the April-May period. The unemployment rate fell further, hitting a new all-time low, while the participation rate was practically unchanged. Contractual wage growth remained moderate.

Rising energy prices have fuelled inflationary pressures.

Inflation reached 3 per cent in the second quarter. The surge in energy prices caused by the Middle East crisis has had a limited impact on electricity and gas bills in Italy. The Government has repeatedly stepped in to counter the pressures on energy prices by temporarily cutting excise duties on fuels.

The short-term inflation expectations of households and firms have increased, though they remain below the levels observed in March 2022, following Russia's invasion of Ukraine. According to our June projections, consumer price inflation will rise to 3.1 per cent on average this year, largely reflecting the higher energy prices, before returning to 2 per cent over the next two years.

Lending to firms continues to expand.

Between February and May, lending to firms accelerated, while growth in loans to households remained stable. Interest rates rose on new loans to firms and, to a lesser extent, on new mortgage loans. Credit standards were virtually unchanged in the first quarter. Net bond issuance by non-financial corporations increased in a high-yield environment.

The Italian Government's public finance estimates confirm that the deficit will trend down over the coming years.

Based on the estimates contained in the Public Finance Document 2026 published last April, net borrowing will decline over the four years 2026-29. The net expenditure growth rates will be in line with what has been agreed at European level, except for 2027. The debt-to-GDP ratio will grow in 2026 and then decline in the following years. The European Commission gave an overall positive assessment of the state of progress of Italy’s corrective path under the excessive deficit procedure.