Bankitalia: rising US tariffs will subtract 0.5 percentage points from Italy's GDP in the three-year period 2025-2027
The Note presenting macroeconomic projections for Italy in the three-year period 2025-27: Gross Domestic Product will increase by 0.6% in 2025, 0.8% in 2026 and 0.7% in 2027
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Bankitalia confirms its GDP estimates and predicts that Italy's gross domestic product will increase by 0.6 per cent in 2025, 0.8 per cent in 2026 and 0.7 per cent in 2027, driven mainly by the recovery of consumption.
Increased tariffs and uncertainty would, on the other hand, penalise investment and foreign sales, subtracting around 0.5 percentage points from output growth in total over the three-year period 2025-27. However, a stronger tightening of trade policies and continued high levels of uncertainty could lead to more unfavourable developments. In particular, if tariffs were to return to the levels announced on 2 April, growth would be about two-tenths of a percentage point lower in the current year and up to half a point per year in the next two years than in the baseline scenario.
At the same time, higher growth, the Via Nazionale institute's engineers note, could result from more pronounced effects of increased defence and infrastructure spending at the European level or from a more favourable outcome of trade policy negotiations than implied by the baseline scenario.
These indications are provided in the Note presenting the macroeconomic projections for Italy over the three-year period 2025-27 prepared by Bank of Italy experts as part of the Eurosystem coordinated exercise. It should be noted that Bankitalia's projections are made on the basis of common assumptions agreed at the Eurosystem level, which assume an increase of about 10 percentage points by the United States in tariffs on imports of EU goods. The projections, as agreed within the Eurosystem, are based on information available as of 14 May for the formulation of technical assumptions and as of 20 May for economic data.
According to the Via Nazionale Institute, inflation will remain contained, averaging 1.5 per cent this year and next and 2.0 per cent in 2027. Net of the energy and food component, it would be 1.8 per cent on average this year and fall to 1.6 per cent in the next two years, mainly reflecting lower labour cost pressures. Possible retaliatory tariffs increases by the European Union could exert temporary upward pressures, the effects of which would be more than offset in the medium term by the opposite effects of a marked and persistent deterioration in aggregate demand.
