The Bank of Italy cut its forecast for growth this year, reckoning that new US tariffs will hold back expansion in the euro zone’s third-biggest economy.

Gross domestic product is seen rising 0.6% in 2025 compared to a previous forecast of 0.8%, according to the central bank’s latest projections released on Friday. Output will accelerate to 0.8% next year, before slowing again to 0.7% in 2027.

“Growth will be affected by the tighter trade policies, but will be buoyed by the expansion in consumption fostered by the recovery in real disposable income,” the report said.

While investment will benefit from EU Recovery Plan spending, it will also be “hindered by the uncertainty connected with trade tensions and by the continuing effects of the phasing out of residential building incentives,” officials said.

The forecast precedes a new economic outlook from Premier Giorgia Meloni’s government later this month. That is likely to be weaker than the last one due to disappointing growth in 2024 of 0.7%, instead of the targeted 1%.

The Bank of Italy noted that its forecasts include “an initial and necessarily limited assessment of the impact of the tariffs announced on 2 April by the United States.” They don’t include any assumptions of possible retaliatory measures by the European Union nor the potential repercussions on international markets.

Written by: Alessandra Migliaccio @Bloomberg

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