Italy GDP Growth Forecast: 0.6% for 2025, 0.8% for 2026 Despite US Tariffs

Italy GDP Growth Forecast will remain unchanged at 0.6% for 2025 and 0.8% for 2026, Economy Minister Giancarlo Giorgetti confirmed during a political event in Rome on Sunday. The announcement signals the government’s confidence in the country’s economic resilience despite rising global trade tensions, including newly imposed U.S. import tariffs that have created uncertainty across the eurozone.

Giorgetti emphasized that these forecasts were initially published in April and already factored in potential trade disruptions and the impact of the U.S.-led tariff war. “We feel confident in confirming GDP estimates for these years,” he stated, highlighting that Italy’s economic planning had anticipated such risks well in advance.

Table of Contents

Economic Context: Italy Faces External Headwinds

Italy, the eurozone’s third-largest economy, experienced a 0.1% contraction in the second quarter of 2025 compared to the first quarter, largely due to weaker trade flows. The drop in exports weighed on growth as global demand softened and tariffs increased friction in international trade.

Despite the quarterly contraction, there are signs of resilience in the domestic economy. Industrial production rose by 0.4% in July from the previous month, indicating that Italian manufacturing — a sector that has struggled for years — might be regaining some momentum.

The government believes that this modest recovery, combined with stable domestic demand, justifies maintaining its growth projections. These forecasts will be formally presented to parliament by October 2, along with multi-year budget targets that will shape Italy’s fiscal strategy for 2026 and beyond.

Budget Targets and Deficit Reduction Goals

A key component of the government’s economic policy is ensuring that Italy’s budget deficit remains below the European Union’s 3% of GDP ceiling. Giorgetti reiterated that no additional fiscal tightening will be required to achieve this target next year.

He also expressed optimism that Italy could exit the EU’s ongoing excessive deficit procedure, which places strict requirements on member states to gradually reduce their deficits. In July, Giorgetti had already indicated that the deficit might be cut below the 3% threshold in 2025, providing Italy with greater fiscal flexibility.

Maintaining fiscal discipline is essential for Italy, which has one of the highest public debt-to-GDP ratios in the eurozone. By keeping deficits under control, the government aims to reassure markets and European institutions that its fiscal policy remains credible and sustainable.

Tax Relief for Middle-Income Families

In addition to maintaining growth projections, Giorgetti reiterated government promises to reduce the tax burden on middle-income households. However, he stopped short of detailing how these cuts would be financed, a question that will likely become a central topic of debate when the budget is presented to parliament.

The co-ruling League party, which Giorgetti belongs to, has proposed that national banks contribute over €1 billion ($1.17 billion) to help fund the 2026 budget. This measure, if adopted, would be part of a broader strategy to balance tax relief with revenue-raising measures.

Impact of U.S. Tariffs on Italy’s Economy

The latest U.S. tariffs have cast a shadow over global trade, and Italy is no exception. The country’s export-heavy economy, particularly its automotive, fashion, and luxury goods sectors, is vulnerable to rising trade barriers.

Nevertheless, Italian policymakers believe the economic impact will be manageable, partly because their April forecasts already accounted for a potential slowdown in global trade. This proactive approach has allowed the government to maintain a steady outlook even as other European economies revise growth projections downward.

Industrial Output Offers Hope

The 0.4% rise in industrial output in July was one of the more encouraging signs for Italy’s economy in recent months. After years of stagnation, the manufacturing sector is showing signs of life, supported by increased investment in automation and green technologies.

Analysts say that continued improvement in industrial output could offset some of the drag from weaker exports. If domestic demand remains strong, Italy could even exceed its current growth projections, though much will depend on how long the global trade disruptions last.

Political Dimension: Building Confidence

Giorgetti’s decision to maintain the Italy GDP Growth Forecast also serves a political purpose. By projecting stability and confidence, the government hopes to reassure investors, businesses, and voters that Italy is well-prepared to navigate turbulent global conditions.

The updated forecasts and budget targets, expected to be submitted by October 2, will be closely scrutinized by European institutions and financial markets. Investors will be watching to see whether Italy can continue reducing its deficit while still stimulating growth through tax relief and targeted spending.