Italy raises growth forecasts and plans to comply with the EU deficit limit in 2026

Rome. Italy has raised its growth forecasts and wants to meet the European Union's deficit limit in 2026 for the first time in seven years. However, from 2027 onwards, the budget deficit is expected to be above the EU's permitted mark of three percent of gross domestic product (GDP).

GDP will increase by 1.0 percent in 2026, Economics Minister Giancarlo Giorgetti announced on Friday. The government had previously assumed 0.6 percent. For next year the forecast is raised from 0.6 to 0.8 percent. The budget gap will increase to 3.4 percent of GDP in 2027. The reason for this is that Italy wants to use the leeway granted by the European Union to increase defense spending and to deal with the energy crisis.

Prime Minister Giorgia Meloni is putting together her final budget before parliamentary elections due in 2027. The economic environment is difficult, as in many other countries. Rising energy prices are driving up inflation and the cost of government borrowing is rising.

According to the new plans, the country's public debt will only begin to decline in 2028, a year later than planned. It is expected to peak next year at 138.5 percent of GDP. Giorgetti explained that the deficits for the next two years would be over three percent of GDP. However, they would have to be adjusted for additional spending on defense and energy. On this basis, Italy is below three percent.

The Italian economy developed better than expected in the first half of the year. It was also supported by a steady flow of billions in EU money from the Covid-19 reconstruction fund.