Italy’s economy continues to beat expectations, but according to Prometeia’s latest Quarterly Economic Outlook for September 2026, that strength rests largely on temporary factors. Rising energy costs and shrinking fiscal headroom now pose a serious test.
Prometeia notes that renewed Middle East tensions have pushed Brent crude back towards $100 a barrel, undermining the disinflation markets had anticipated. The firm has lifted its energy price assumptions from its July forecast. It adds that the premium reflects shipping disruption risk through waterways such as the Strait of Hormuz and Bab el-Mandeb more than an outright supply shortage. Weaker global oil demand and higher output elsewhere are containing the spike, but Prometeia does not expect prices to fall below $80 even once shipping normalises.
A second, structural shift compounds the problem. Higher input costs and a stronger yuan are pushing Chinese export prices up, eroding the deflationary effect cheap Chinese goods have had on advanced economies. Prometeia observes that energy and Chinese goods, which previously offset each other, are now both driving prices higher.
As a result, Prometeia has revised its policy rate path upwards and expects both the Federal Reserve and the European Central Bank to deliver a single 25 basis-point hike before year end. It forecasts world GDP growth averaging 2.9% annually over the next three years, with slowdowns across advanced and emerging economies.
In the US, AI-driven non-residential investment continues to support growth. However, Prometeia finds that tariffs have failed to shift production onshore, with goods imports steady at 12.5% to 13% of GDP and the effective average tariff falling to about 7% from roughly 10% as importers diversify suppliers. Weak real incomes and low confidence point to softer consumption later in the year.
Europe lacks a comparable AI investment wave, yet Germany’s exports, including “AI-enabling” goods, were a surprise growth driver in the first half. Defence spending should add around 0.3 percentage points to euro-area growth each year.
For Italy, the headline risk is gas. European TTF prices of about €80 per MWh, nearly double last year’s level, will slow disinflation and erode household purchasing power. Even so, second-quarter GDP rose 0.2% quarter on quarter, prompting Prometeia to raise its 2026 forecast to 0.9% from 0.7% and its 2027 projection to 0.6% from 0.4%. Services spending, German demand and a strong tourism season have all helped.
The fiscal picture is tighter. Italy’s failure to exit the EU excessive-deficit procedure on 2025 data has complicated budget planning, while pressure to support households ahead of the 2027 elections remains strong, it said. Prometeia’s baseline sees the deficit reaching 3.2% of GDP in 2027. With public debt near 138% of GDP, a 50 to 60 basis-point rise in bond yields would add roughly €2bn in first-year interest costs.
Prometeia concludes that Italy’s central challenge is stopping an energy shock from becoming a fiscal one, requiring the deficit to fall to 2.9% in 2028 and 2.8% in 2029.
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