Italy raises its economic growth forecast for 2026

Italian Prime Minister Giorgia Meloni updated the latest judgment on the country's economic growth in 2026 in a media interview. Based on the economic performance in the first half of this year, the authorities have raised the full-year GDP growth forecast to 1%. This growth rate is basically on par with the overall growth rate of the Eurozone and there is a possibility of slightly exceeding it. In April this year, the official forecast for the economic growth in 2026 was only 0.6%. The Italian economy grew by 0.5% in 2025 and is expected to double in 2026.

In the first half of the year, the national economy recovered. The domestic GDP grew by 0.3% quarter-on-quarter in the first quarter, and continued to increase in the second quarter, with a quarter-on-quarter growth rate of 0.2%. There was positive growth for two consecutive quarters. As of the end of June, the economic growth in this year has reached 0.8%. This means that even if the economy stalls in the remaining two quarters of the year, the final growth rate for the whole year will be much higher than last year's level. Unlike the inflated growth achieved by relying on data from a single month, the steady recovery in quarters indicates that the core economic links such as domestic demand and production have shown substantive improvements.

At the same time, the authorities do not shy away from the long-term problems of the domestic economy. For many years, Italy has failed to achieve stable and sustained economic growth, and its economic resilience is far less than that of the core countries in the Eurozone such as Germany and France. Italy has an extremely high dependence on energy imports, and the ongoing geopolitical conflicts have continuously pushed up global energy prices, significantly increasing domestic production costs and squeezing corporate profits. Compared to other economies in the Eurozone, the industrial structure of Italian enterprises is relatively traditional, with a large number of small and medium-sized enterprises, making it difficult to support rapid economic growth.

In addition, the huge economic disparity between the north and the south of the country, as well as issues such as population aging, have also made it difficult for the economy to break free from the low-speed growth predicament. The government has specifically introduced various rectification policies, but all the adjustment measures cannot take effect immediately. The policy benefits need a long time to show results. Over the past few years, the EU has allocated billions of euros in special funds for Italy's COVID-19 recovery, but the effects have not yet fully manifested. Despite the constant inflow of EU funds, Italy's annual economic growth rate has not been above 1% for the last three years.

Italy's growth is more dependent on a weak economic recovery and policy support. Its internal growth momentum is insufficient. Once external energy prices fluctuate again or external demand declines, the country's economy is likely to fall into a slowdown again. The expected growth rate of 1% this time can only allow Italy to barely keep up with the average level of the Eurozone. The core countries of the Eurozone rely on high-end manufacturing and technology industries, which leads to a more stable growth rate. In the last 10 years, major European countries such as France and Germany have had growth rates around or above 20%, while Italy's cumulative growth rate in this period has been below 2%.

From the financial market's point of view, a predicted growth rate of 1% is a neutral and stable signal. It can stabilize the pessimistic expectations of the market regarding the Italian economy in the short term, benefiting the domestic government bonds and stock market sentiment recovery. However, low-speed growth is unlikely to bring excess asset returns. The limited economic growth rate means that the expansion space for corporate profits is limited, and the stock market is unlikely to experience a significant rally. The growth attribute of Italian assets is relatively weak, while the defensive attribute is stronger.