Italy's Growth Outlook Darkens Due to Iran Conflict, Business Lobby Says

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

Confindustria Revises Italy's Economic Forecast Amid Geopolitical Tensions

By Gavin Jones

Growth Projections and Downside Risks

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.

Base Scenario and Alternative Outcomes

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.

Potential Impact of Prolonged Conflict

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.

Energy Costs and Policy Recommendations

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.

Further Economic Indicators and Government Response

Future Growth and Government Projections

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.

Public Finances and Inflation Outlook

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)