Dpfp, Bankitalia: more favorable picture than forecast

The economic context in which the public finance document is launched appears more favorable than could have been expected a few months ago. The Bank of Italy's hearing at the joint budget commissions reveals cautious optimism but at the same time contains an invitation not to lower one's guard on the containment of public spending and to maintain the objective of exit from the infringement procedure for excessive deficit, even if this objective has now been postponed to next year.

"Overall, the economic picture appears more favorable than expected in June. The medium-term prospects are affected by the rise in inflation and more restrictive financial conditions, which will likely lead to a temporary slowdown in domestic demand". said the head of the economics and statistics department of the Bank of Italy Andrea Brandolini at the hearing on the Dpfp, adding that "economic activity should, however, return to strengthening from the second half of 2027, as inflationary pressures ease. The developments envisaged in the Dpfp are consistent with this framework both in the trend projections, which place growth at 1.0 percent this year, at 0.6 in the next and at 0.8 in 2028, both in the programs, in which growth would be higher by 0.3 percentage points in the two-year period 2027-28 thanks to greater spending on defense and energy security"

According to Brandolini, "it remains necessary to pay attention to the trends in the last part of the year, in order to promptly counteract any deviations, given the reduced margin in the DPFP estimates compared to the 3.0 percent threshold. Compared to what was forecast in the Public Finance Document (DFP) of last April, the deficit would remain substantially unchanged. The higher overall revenues (around 0.2 percentage points of GDP) would be offset by higher interest and primary expenditure (for approximately 0.1 points of GDP each)”. The representative of the Bank of Italy stated that "net spending, the reference aggregate for monitoring public accounts based on the new European rules, would grow this year by 1.6 percent, in line with both the spring estimate and the objectives of the medium-term budget structural plan; the cumulative growth rate from 2024 would be equal to 1.2 percent, a value 0.3 percentage points higher than that agreed with the Commission and the Council in January 2025, but within the margins of tolerance provided for by the new rules. The trend in net expenditure in the current year is lower than that of primary expenditure (2.6 percent). The difference is mainly explained by the increase in disbursements financed by transfers from the European Union (which would rise to 0.9 percentage points of GDP, from 0.6 in 2025).

"Inflation has increased in recent months, mainly due to the effect of energy price increases. Underlying inflation is substantially stable. Compared to the energy crisis of 2021-22, the increase in energy product prices is so far much more contained and no signs of a significant transmission to other price components are emerging", continued Brandolini. "In Italy, economic activity continued to expand in the first half of the year: GDP increased by 0.9 percent compared to the same period in 2025. Growth was supported by internal demand and in particular by household consumption, also favored by the good trend in employment and disposable income. The implementation of the National Recovery and Resilience Plan (Pnrr) continued to fuel spending on public works and non-residential construction. Driven by the digital transition, it continued the accumulation of intangible assets indicates that growth would continue in the third quarter."

"Uncertainty remains very high. The forecast for the world economy is highly dependent on the evolution of the conflict in the Middle East and its repercussions on global production chains and raw material prices. Further risks derive from the possibility of a worsening of financial conditions following new increases in long-term yields at a global level or possible corrections in stock markets concentrated in the technology sector", warned Brandolini