EU cuts Italy’s 2025, 2026 growth forecasts citing falling productivity and tariffs

Brussels – Italy returns to square one: Blame trade tensions, global uncertainties, measures, and structural problems; growth will be lower than expected. Not for 2024, which the European Commission, in its spring economic forecast, leaves unchanged from its November forecast (0.7 percent). For 2025 and 2026, Brussels cuts 0.3 percentage points of growth, with the increase in Italian Gross Domestic Product now expected at 0.7 percent and 0.9 percent, respectively.

Italy has an ongoing problem because “among the largest EU member states, in 2024, there were further declines in labor productivity in Germany and Italy,” the EU Commission noted. This explains Italy’s difficulties, but it risks paying for the aggressive policies of US President Donald Trump. Italy is on the list of countries “strongly exposed” to the trade measures threatened and decreed by the White House. So, while domestic demand is expected to accelerate in 2025,, “US trade tariffs will affect the exports of goods.”

Even if the work of Prime Minister Giorgia Meloni — who also traveled to Washington to try to defuse the crisis — may have yielded some results, to date, there are no signs of this in Brussels, where Italy is viewed with the doubts that the situation warrants. Data in hand, in 2026, the country is projected to rank last in the entire EU in terms of growth rate (0.9 percent, along with Belgium).

Government accounts, debt increases

In addition to anemic growth, Italy’s debt/GDP ratio is also on an upward trajectory, in open violation of European commitments and rules. According to the projections, 134.6 percent in 2023, 135.3 percent in 2024, 136.7 percent in 2025 and 138.2 percent in 2025. A problem for a country already under scrutiny for the trend of its accounts. The situation deteriorated due to the Superbonus scheme that the second Conte government passed. According to the EU executive, in 2024, debt grew “mainly due to a debt-increasing stock-flow adjustment related to the lagged impact on cash borrowing of the tax credits for housing renovations.”

Deficit declines, but still high

On the other hand, Italy can boast downward deficit projections, another element carefully considered when assessing the health of the national public accounts. The renewed stability pact provides even stricter rules and easier fines for those who do not reduce it within the 3 percent of GDP threshold and do not commit to moving away from it. Italy will exceed this limit in 2024 (3.4 percent) and 2025 (3.3 percent) but will return to meeting common budget rules in 2026 (2.9 percent).

The correction effort may avoid, for now, the initiation of an excessive deficit procedure, even though the EU executive will return to this in early June, when it adopts the European Semester package, the set of reports on compliance with the rules envisaged in the common rules coordination process.

 From the Economy Commissioner, Valdis Dombrovskis comes a new call for reform: “The risks to the outlook remain tilted to the downside, so the EU must take decisive action to boost our competitiveness.”