By Giuseppe Fonte
ROME, April 3 (Reuters) - The Italian economy will grow by 0.6% this year and 0.5% in 2027, the country's central bank said in a report on Friday, cutting its previous estimates while also hiking forecasts for the inflation rate.
The Bank of Italy's new forecasting scenario takes into account the radical deterioration of the international outlook due to the U.S.-Israeli war against Iran and the resulting "exceptionally high uncertainty", the report said.
Both the 2026 and 2027 GDP
forecasts are below the growth targets set by the government in September, which were 0.7% and 0.8% respectively. The Treasury is due to update its budget and GDP estimates later this month.
The Bank of Italy also projected a 0.6% rate for 2028, which would be a fourth consecutive year of sub-1% growth.
"Economic activity is particularly affected this year by the weakening of domestic demand, which has been held back by the sudden rise in energy prices, growing uncertainty and a decline in confidence," the report said.
Oil prices are expected to average $103 per barrel, while natural gas prices are seen at $55 per megawatt-hour in the second quarter of this year, before gradually declining.
In December, the Bank of Italy had forecast growth of 0.7% this year, 0.8% in 2027 and 0.7% the following year.
Adjusted for seasonal factors and the number of workdays, the Bank of Italy forecast growth of 0.5% both this year and next.
The report also included a bleaker scenario assuming higher and more persistent increases in energy prices, which would entail lower GDP growth by half a percentage point this year and by around one percentage point in 2027.
Italy would then be at risk of entering recession next year, according to its central bank.
The average EU-harmonised consumer price inflation rate (HICP) should come in this year at 2.6%, the report said, up from a previous 1.4% forecast and above the ECB's 2% target. The inflation rate for 2027 was seen at 1.8% from 1.6%.
(Reporting by Giuseppe Fonte; Editing by Crispian Balmer)
