Italian GDP stagnates while inflation jumps to 5.4%, complicating the Meloni government's objective of 1% growth in 2026

Italy saw its gross domestic product (GDP) stagnate in the third quarter of 2026 compared to the previous one, according to a first estimate published Friday by the National Institute of Statistics (Istat). This quasi-stable growth (+0.02%) is slightly lower than the forecasts published by Factset and Bloomberg, which expected GDP to increase by 0.1% in the third quarter. In the second quarter of 2026, Italian GDP increased by 0.2%, and by 0.3% in the first quarter.

“The economic stagnation observed in the third quarter leaves the growth achieved for the year 2026 unchanged at 0.8%,” specifies Istat. In detail, the service sectors and agriculture are doing rather well, while industry is struggling. Foreign trade is declining but is offset by more dynamic domestic demand (among other things, household consumption) as well as inventory variations.

Inflation jumps to 5.4% year-on-year in October Another cause for concern for the Italian economy: inflation is reaching levels not seen since 2023. The latest figures published by Istat in fact show a sharp acceleration in inflation in October, to 5.4% year-on-year, mainly due to the rise in fuel prices, according to a first estimate published this Friday. The conflict in the Middle East had already helped push consumer prices up 4.2% in September year-on-year.

With 5.4% in October, inflation thus returned to a level... that it had not reached since August 2023, specifies Istat. A 1% growth target increasingly uncertain for Italy "The GDP figure is lower than expected and casts doubt on the possibility of achieving the 1% target set by the government in the budgetary programming document recently sent to the European Commission," write ING analysts in a note.

“In an environment still marked by unresolved geopolitical tensions and rising inflation, the stagnation in the third quarter increases the downside risks surrounding our current forecast of average growth of 0.9% for 2026,” they add. The Bank of Italy revised upwards its growth forecast for Italian GDP in 2026 in mid-October, to 0.9% compared to 0.6% forecast so far, in particular because of less severe geopolitical impacts than expected. The upward revision for the current year "reflects a less marked impact of the conflict in the Middle East than anticipated" during previous forecasts in June, noted the Bank of Italy.

For 2027, growth would be 0.7%, compared to 0.4% forecast so far, "fuelled by the increase in defense and energy security spending" planned in the Meloni government's 2027 budget, according to the Bank of Italy.

Machine-translated from French