Bank of Italy cuts Italian 2026 growth outlook on US tariffs, strong euro

MILAN (Reuters) -The Italian economy will grow by 0.7% next year, in line with the government's latest estimate, the country's central bank said on Friday, cutting a 0.9% forecast it made in June due mainly to the impact of U.S. trade tariffs.

The competitiveness of Italian exports is also being hit by the appreciation of the euro, the central bank said in a quarterly economic bulletin.

The report's forecasting scenario takes into account the trade deal sealed by the United States and the European Union in July which set a tariff rate of 15% on most imports from the EU.

"We assume that these developments will contribute to a marked slowdown in global trade," the central bank said.

The Bank of Italy left unchanged its forecasts for Italian gross domestic product growth in 2025, at 0.5%, and in 2027, at 0.7%.

The euro zone's third largest economy contracted by 0.1% in the second quarter of this year from the previous three months. The Bank of Italy said it expected a return to a weak growth in the second half of the year.

Statistics bureau ISTAT will issue a preliminary estimate of third quarter GDP growth on October 30.

The Italian government this month marginally lowered its own 2025 GDP growth target to 0.5% from an April projection of 0.6%, and trimmed next year's outlook to 0.7% from 0.8%.

Turning to prices, Italy's average EU-harmonised consumer price inflation rate should come in this year at 1.7%, the central bank said, up from the 1.5% it forecast in June.

The inflation rate next year is seen unchanged at 1.5%.

(Reporting by Sara Rossi, editing by Gavin Jones)