Economic Bulletin No. 4 - 2026

Global economic activity has proven more resilient than expected, despite persistent geopolitical tensions.

Growth has continued to benefit from investment in artificial intelligence (AI), which has  helped to mitigate the effects of higher energy prices, though to different degrees across the main economies. Domestic demand remains robust in the United States, while growth in China is supported by foreign trade. Excluding energy, trade growth appears to have remained strong, fuelled by demand for AI-related goods. The ongoing conflict in the Middle East, uncertainty about US trade policies, and tighter financial conditions continue to affect the outlook for the global economy.

Supply conditions in the energy commodity 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 hostilities. The marked widening in refining margins has contributed to pushing up the prices of fuel and other refined petroleum products.

Financial markets are performing well overall, though the risks stemming from rising interest rates and high equity valuations are increasing.

Long-term government bond yields have gone up, reflecting heightened inflationary risks, concerns about developments in public finances in many advanced economies, and competition from the large issuance of bonds in the technology sector. Equity prices rose further, supported by strong corporate results. However, equity valuations remain at historically high levels in relation to expected earnings, and markets are still exposed to correction risks, also in view of higher interest rates and of the uncertainty regarding the profitability outlook in the technology sector.

Some central banks in the advanced economies have raised interest rates to counter inflation.

Price developments continue to be affected by increases in the prices of energy commodities and refined petroleum products, albeit to varying degrees across countries, fuelling concerns about persistent inflation. In September, the Federal Reserve and the Bank of Japan raised their policy rates by 25 basis points, whereas the Bank of England kept them unchanged and the People's Bank of China continued to maintain an accommodative stance.

In the euro area, economic activity has continued to grow.

Euro-area GDP, net of the highly volatile contribution of Irish GDP, increased by 0.3 per cent in the spring months. The expansion was buoyed by foreign demand and household consumption. According to our estimates, GDP growth continued at a moderate pace in the third quarter, driven by services. Inflation rose in the summer owing to the energy component; so far, there are no signs that higher prices for oil, natural gas and refined petroleum products have been passed through to the non-energy components of inflation. In the ECB staff projections published in September, GDP growth estimates were revised upwards for both this year (to 0.9 per cent) and the next. Inflation forecasts remained unchanged at 3.0 per cent in 2026, while they were raised slightly for the next two years.

The ECB has raised its key interest rates again and the cost of credit has gone up in the euro area.

In its September meeting, the Governing Council raised its key interest rates by 25 basis points, bringing the deposit facility rate to 2.5 per cent, and highlighted that the conflict in the Middle East continues to exert pressure on inflation, which is expected to remain well above the 2 per cent target for an extended period of time. The cost of credit has increased for both households and firms; for the latter, it has risen by about 25 basis points since the start of the hostilities. However, growth in lending to firms has strengthened, partly owing to higher liquidity needs, while lending to households has remained stable.

Economic activity continued to expand in Italy.

GDP grew by 0.2 per cent in the second quarter, driven by household consumption and investment, especially in public works and intangible goods. In the summer months, economic activity is estimated to have slowed slightly, reflecting the uncertainty associated with international tensions and higher energy costs. Investment in the digital and energy transition and favourable tourism trends 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.

The current account surplus fell close to zero.

Between April and June, the current account of the balance of payments decreased as a result of the deterioration in the energy balance. Demand for Italian securities by foreign investors was high. Italy's net international investment position remains positive.

Labour market conditions remained 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, as few collective bargaining agreements are awaiting renewal.

Consumer price inflation rose in the summer.

Price growth continued to be affected by higher fuel prices, and increasingly by gas and electricity tariffs, which however are still below the 2021-22 energy crisis peaks. Core inflation rose slightly. According to our October projections, consumer price inflation will rise to 3.2 per cent on average in 2026, peaking in the fourth quarter, and then fall to 2.4 per cent in 2027 and 1.7 per cent in 2028. Core inflation is projected to be broadly stable, at around 2 per cent over the forecasting horizon.

Credit dynamics strengthened over the summer.

Loan growth was limited to medium-sized and large non-financial corporations. The overall trend continues to be supported in part by short-term financing, in response to the greater liquidity needs associated with higher energy prices. Lending to households accelerated. The cost of new loans to firms rose, while that of new mortgage loans to households did not change significantly. Bond issuance by non-financial corporations slowed in an environment of rising yields.

Net borrowing as a share of GDP is projected to decrease this year.

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 and to rise to 3.4 per cent in 2027. Public debt is projected to increase in both years, to 138.5 per cent of GDP, before starting to decline. These developments are consistent with the European governance framework, considering that the Government intends to activate the national escape clause to accommodate spending on energy security and defence in the two years 2027-28.