The Parliamentary Budget Office (UPB) has released a new assessment indicating the conflict in Iran and the wider Middle East will reduce Italy's economic growth by between 0.2 and 0.4 percentage points in each of 2026 and 2027.
In its Wednesday update, the independent budget watchdog also estimated that gross domestic product rose by between 0.1% and 0.2% in the first quarter of this year compared with the previous three months. The UPB emphasized a substantial degree of uncertainty surrounds that quarterly figure.
Officials in Rome are preparing to adjust the government's official growth projections next week. The current target for 2024 of 0.7% is likely to be revised down to either 0.5% or 0.6%, while the forecast for 2027, presently 0.8%, is expected to be moved to 0.6% or 0.7%.
These figures come from the UPB's analysis linking geopolitical tensions in the Middle East - specifically the war in Iran and associated regional spillovers - to a lower-than-previously-expected trajectory for Italian output over the medium term. The projected reductions for 2026 and 2027 are expressed as a range - 0.2 to 0.4 percentage points - reflecting the UPB's estimates of the war's economic impact.
The UPB's reported 0.1% to 0.2% increase in GDP for the first quarter is presented with caution; the office noted that the estimate carries a large degree of uncertainty, underscoring limits to current data confidence.
Against that backdrop, the government's imminent downward revision of its headline growth targets would align official forecasts with the UPB's calibrated view of how sustained regional conflict could suppress Italy's growth path in the coming years.
Summary of the situation
- The UPB projects a 0.2-0.4 percentage-point reduction to Italy's GDP growth for both 2026 and 2027 attributable to the war in Iran and the wider Middle East.
- First-quarter GDP is estimated to have expanded by 0.1% to 0.2% quarter-on-quarter, but this estimate is described as uncertain by the UPB.
- The government is expected to lower its growth forecast for 2024 from 0.7% to 0.5% or 0.6%, and to revise the 2027 forecast from 0.8% to 0.6% or 0.7%.
Key points
- UPB finds the Middle East conflict will subtract up to 0.4 percentage points from growth in 2026 and 2027.
- Q1 GDP shows small positive momentum (0.1%-0.2%) but with significant uncertainty attached to the estimate.
- Rome is set to lower its near-term and medium-term growth targets to reflect the UPB's assessment.
Risks and uncertainties
- Persistence or escalation of the war in Iran and regional tensions could further affect projected growth reductions for 2026 and 2027.
- The UPB's Q1 GDP estimate carries a large degree of uncertainty, limiting confidence in short-term momentum assessments.
- Government forecasts are likely to be revised downward, introducing planning and policy uncertainty for fiscal and economic stakeholders.