Uncertainty on the global scenario and stability on the domestic front: the outlook for the Italian economy

In an increasingly less globalised world, the resilience of the world economy is being tested by increasingly frequent outbreaks of geopolitical crises, as well as by the return of trade barriers not seen in decades; in a word, by both trade wars and hot wars.

Against this backdrop, despite the turbulence in the global outlook, we have recently kept our forecasts for Italian GDP growth unchanged, at 0.7% in 2025 and 1% in 2026, although the risks to the forecast profile have increased.
 

RISK FACTORS AND GROWTH PROSPECTS IN THE ITALIAN MACROECONOMIC SCENARIO

Navigating these choppy waters, what are the ‘tailwinds’ supporting the Italian economy and what are the ‘headwinds’ that could hold it back?
 

FACTORS SLOWING ECONOMIC GROWTH
 

Among the factors slowing growth are:

1. First, the impact of the trade tariffs implemented by the Trump administration in the United States: the direct effect could weigh on Italy’s annual GDP growth by about two-tenths in 2025 and one-tenth in 2026. The working assumption is that the configuration in force in July 2025, with a general duty of 10% and sector-specific tariffs on cars and certain metals, will be maintained;
2. Second, uncertainty on the global outlook, in the wake of both the “unpredictability” of US policies and of a possible new escalation of tensions in the Middle East; indeed, uncertainty has increased recently, and may now count for more than expected a few months ago: we estimate the effect on Italian GDP growth to be -0.3% in 2025 and -0.1% in 2026;
3. Finally, also the gradual and inevitable fiscal consolidation underway may dampen GDP growth, we estimate by two tenths in 2025 and three tenths in 2026.

DRIVERS SUPPORTING THE CYCLE AND OPPORTUNITIES FOR ITALIAN ECONOMY 
 

Conversely, the main factors supporting the cycle are:

1. First, the completion of the National Recovery and Resilience Plan whose impact can be quantified as +0.3% on GDP growth in 2025 and +0.4% in 2026 (this in case of full implementation of the plan, but with very cautious assumptions on the share of additional expenditure and its transmission to the economy);
2. Second, the transmission of the effects of the ongoing monetary easing cycle will have, in our estimates, a positive impact on annual Italian GDP growth of two tenths in 2025 and three tenths in 2026;
3. Finally, we could also begin to see, starting in 2026, a positive spillover on Italy of the fiscal expansion programme that has been announced in Germany, which is very broad in scope: we estimate this factor could raise Italy's annual GDP growth in 2026 by one tenth.

THE ROLE OF DOMESTIC DEMAND AND PRIVATE CONSUMPTION IN THE ITALIAN ECONOMY
 

We expect foreign trade to dampen the Italian economy in the two-year period 2025-2026, so economic activity will be driven by domestic demand. In particular, private consumption, which has been very weak in the last two years due to the energy and inflationary shock, should be stronger thanks to the ongoing recovery in purchasing power; however, admittedly, uncertainty on the global outlook is pushing up the savings rate, thus limiting households' propensity to spend.

PRIVATE INVESTMENT TRENDS AND THE ROLE OF INCENTIVES AND NRRP

Business investment surprised on the upside in Q1 2025, but will be inevitably affected by the high uncertainty on global outlook. However, capital spending may find support on the one hand from lower interest rates, and on the other hand from the reprogramming of unused funds from the 'Transition 5.0' fiscal incentive programme, which, together with resources from the revised National Recovery and Resilience Plan (and possibly from other European funds), could form a new support package for businesses. As regards construction investment, the expected 'step change' in the implementation of infrastructure works provided for in the Recovery Plan will support non-residential construction, offsetting the weakness of the residential sector due to less generous tax credits.  
 

PUBLIC FINANCE: BALANCE BETWEEN FISCAL PRUDENCE AND SUPPORT TO THE ECONOMY
 

On the subject of public finance, our working assumption is that the Government will maintain the stance shown so far of balance between fiscal prudence and support to the economic cycle, and stick to a structural correction of about half a point of GDP per year as included in the Medium-Term Fiscal-Structural Plan; yet, debt remains on an upward path for now, in the wake of the effects of the (past) Superbonus.

SOURCE: Intesa Sanpaolo elaborations and forecasts based on Istat data