Italy: Q4 2025 GDP Confirmed at +0.3% Q/Q; 2026 Outlook Remains Unchanged

Italy’s Q4-25 GDP growth came in at +0.3% q/q (+0.8% y/y, unchanged from the preliminary estimate) after +0.2% in Q3, implying a GDP growing on average by +0.7% in 2025. According to the Italian National Institute of Statistics (ISTAT), Q4 GDP growth was driven by domestic demand. Detailed figures of demand components indicate a growth driven by both final consumption expenditures (+0.1% q/q after +0 .3 % in Q3) and gross fixed capital formation (GFCF), which rose by a strong 0.9% q/q. By contrast, net trade contributed negatively to growth with exports falling by 1.2% and imports by 1.0%. Looking at contributions, domestic demand excluding inventories added 0.3 pp to quarterly growth. Net foreign demand subtracted 0.7 pp, while the change in inventories contributed +0.7 pp, fully offsetting the drag from foreign trade. Considering a carry-over at 0.3% for 2026, we forecast Italian growth to pick up modestly in 2026 to 0.8%, with quarterly GDP growth hovering around 0.3% q/q through 2026. Domestic demand should remain the main driver, with household consumption gaining traction as purchasing power improves and the labour market stays resilient (as shown by latest unemployment figures released at 5.1% in January after 5.6%), while investment continues to be supported by remaining European NGEU/RRF-related spending as the programme approaches its end, and easier financing conditions amid ECB rate cuts. However, the intensification of the conflicts in the Middle East increases substantially the economic and financial uncertainties. Financial prices have already reacted strongly, in particular decreasing equity prices, appreciating the US dollar and pushing oil prices up. At the current juncture, it would be speculative to quantify the impact of the conflicts on both euro area growth and inflation outlooks as this will highly depend on the duration of the conflicts. In this respect, how lasting the recent developments in oil prices and euro area exchange rate amid heightened uncertainty have the potential to push up inflation while decreasing economic growth is the real issue.