Italy’s growth outlook darkens due to Iran conflict, business lobby says

By Gavin Jones

ROME, March 25 (Reuters) – Italy’s economy will grow by 0.5% this year, the country’s main business lobby Confindustria forecast on Wednesday, cutting its previous 0.7% estimate made in October and ​warning of strong downside risks if the conflict in Iran ‌drags on.

Gross domestic product in the euro zone’s third-largest economy rose by 0.5% last year, the third straight year of sub-1% growth.

Confindustria said in its twice-yearly report that its base scenario of 0.5% 2026 growth was based on “an optimistic hypothesis” that the ‌conflict in ​Iran will be over by the end ⁠of March.

If the hostilities following ⁠the US-Israeli strikes that began on February 28 should persist through the second quarter, Italy’s GDP will stagnate this year, the business group warned.

In an even worse scenario that the conflict persists into the fourth ​quarter, the knock-on effects on energy prices and trade will thrust the Italian economy into recession, with a 2026 contraction of 0.7%, it ⁠said.

Presenting the report, Confindustria President Emanuele Orsini ⁠said Italy’s chief problem triggered by the war was ​spiralling energy costs for firms.

“We’ve gone from 106 euros per megawatt hour to ​170,” he told reporters, calling for a response at the ‌European Union level.

“Europe has to react,” he said, calling for joint EU debt issuance and a unified European energy market.

Confindustria said its baseline forecast for 2027 was for a marginal acceleration in growth to 0.6%.

Giorgia Meloni’s government, ⁠which last autumn forecast growth of 0.7% for this year, is due to update its projections next month.

On public finances, Confindustria said Italy’s budget deficit, which ⁠came in at 3.1% ‌of gross domestic product last year, just above the ⁠European Union’s 3% limit, would decline to 2.8% this ​year ‌and remain broadly stable at 2.7% in 2027.

It projected ​that Italian ⁠consumer price inflation, driven up by energy costs, would accelerate sharply to an average of 2.5% this year, compared with 1.5% in 2025, and ease slightly to 2.2% in 2027.

If the Iran conflict continues through the second quarter, Italy’s average inflation rate this year will jump to 4.3%, the report forecast.

(Reporting ​By Gavin Jones)