IMF Projects Modest Growth for Italy as Debt and Inflation Risks Persist

Italy’s economy is expected to grow by 0.5% in both 2026 and 2027, while high public debt, rising energy costs and an aging population continue to create economic challenges.

WASHINGTON — The International Monetary Fund has completed its 2026 review of Italy’s economy, finding that the country’s financial system remains broadly stable despite weak growth, elevated public debt and increasing global uncertainty.

The review was conducted as part of the IMF’s Article IV consultation process and included findings from its Financial Sector Assessment Program. Italian authorities consented to the publication of the IMF staff report.

Italy’s real gross domestic product grew by 0.5% in 2025, partly supported by investment through the country’s National Recovery and Resilience Plan. The IMF expects the economy to grow at the same 0.5% pace in 2026 and 2027.

Fiscal conditions have improved, with Italy strengthening its primary budget surplus through higher revenue and improved tax compliance. However, the IMF warned that the country’s public debt remains excessively high and vulnerable to changes in interest rates and economic growth.

Inflation is expected to rise to 2.9% in 2026 and remain above 2% in 2027. The increase is being driven partly by higher global energy prices and Italy’s continued dependence on imported fossil fuels.

Although employment has remained near historic highs, Italy continues to report lower labor-force participation than comparable countries, particularly among women and young people.

Over the longer term, rapid population aging and persistently weak productivity are expected to restrict economic growth. An escalation in geopolitical tensions could further increase prices, tighten financial conditions and weaken consumer and business confidence.

The IMF also warned that delays in public investment or slower-than-planned fiscal consolidation could negatively affect financial markets. Faster productivity gains from regulatory reforms, digitalization and emerging technologies such as artificial intelligence could improve the outlook.

Financial System Remains Resilient

The IMF’s financial-sector review found that Italy’s financial system remains broadly sound, with banks demonstrating resilience under severe adverse economic scenarios.

Executive directors welcomed improvements in financial oversight but urged authorities to remain vigilant about connections between banks and government debt, vulnerabilities at smaller financial institutions and growing cybersecurity threats.

The IMF recommended strengthening crisis-management systems, anti-money-laundering protections and oversight tools designed to reduce risks across the financial system. It also encouraged Italy to complete reforms addressing insolvency and debt enforcement.

IMF Calls for Continued Fiscal Discipline

IMF directors generally supported Italy’s gradual fiscal adjustment plan, which aligns with the European Union’s fiscal framework. However, they emphasized that fiscal policy must place public debt on a clear downward path without unnecessarily weakening long-term growth.

The IMF recommended improving government spending efficiency through digitalization and comprehensive spending reviews. Any new spending programs should be offset by savings elsewhere in the budget.

Financial assistance provided in response to higher energy prices should remain temporary, targeted and budget-neutral, according to the IMF. The organization also recommended stronger tax compliance, fewer tax exemptions and a broader tax base.

Structural Reforms Needed to Strengthen Growth

The IMF said ambitious structural reforms will be necessary to improve productivity and strengthen Italy’s medium-term economic outlook.

Priority areas include reducing regulatory barriers, improving the efficiency of the judicial system and expanding capital markets to support innovation and private investment.

Italy must also address the economic pressure created by an aging population. The IMF recommended policies designed to increase workforce participation and improve education, job training and school-to-work transitions.

Executive directors acknowledged Italy’s continued implementation of its National Recovery and Resilience Plan but stressed the importance of maintaining investment, completing reforms and accelerating the transition to cleaner energy.

The IMF also said a more integrated European Union market for goods, services, capital and labor could encourage investment, increase productivity and strengthen Italy’s ability to withstand future economic shocks.