Economic growth accelerates in the fourth quarter of 2025

Economic growth gathers pace in Q4: The second release confirmed that Italy’s GDP grew 0.3% quarter on quarter on a working-day and seasonally adjusted basis in Q4—unchanged from the flash estimate—after a 0.2% expansion in the previous quarter. Q4’s reading was slightly above the euro area average. On a working-day and seasonally adjusted year-on-year basis, economic output grew 0.8% in Q4, following a 0.7% expansion in the previous quarter. As a result, over 2025 as a whole, GDP growth picked up to 0.7% from 2024’s 0.6%, but remained below the past decade average of 1.1%.

Domestic demand underpins GDP growth: Relative to the previous period's data, the reading for government consumption improved in Q4 (+0.2% in seasonally adjusted quarter-on-quarter terms vs +0.1% in Q3). In contrast, readings worsened for private consumption (+0.1% vs +0.3% in Q3), fixed investment (+0.9% vs +1.0% in Q3), exports of goods and services (-1.2% vs +2.1% in Q3) and imports of goods and services (+1.0% vs +2.0% in Q3). Domestic demand drove GDP growth, as expected, albeit decelerating from the prior quarter. Fixed investment was supported by lower financing costs following past ECB rate cuts and by EU recovery funds, particularly in residential construction as the government continues to back energy-efficiency renovations.

U.S.-Iran war to weigh on GDP growth this year, but it remains to be seen by how much: Our panelists expect GDP growth to ease slightly in Q1 2026 from Q4 in sequential terms. Higher fuel prices linked to the ongoing U.S.-Iran war will drag on private spending; measures introduced by Italy in late February to curb energy costs through tax and carbon credits may not offset the hit to GDP growth. In 2026 as a whole, our panelists expect GDP growth to remain broadly in line with 2025 levels; historically low unemployment rates and past interest rate cuts should help offset the hit to private spending from higher fuel prices in the near term. Still, if the Strait of Hormuz remains closed for an extended period of time, fuel prices could remain higher for longer, stoking inflation—particularly in Italy—thereby weighing on real disposable income and posing a key downside risk to GDP growth. Meanwhile, stronger-than-expected spillovers from higher government spending in Germany could boost external demand, posing an upside risk.

Panelist insight: Commenting on the outlook, ING’s Paolo Pizzoli stated: “Looking ahead, the growth profile for the Italian economy will crucially depend on developments in the war in Iran and the Middle East and its spillovers on energy markets. Given Italy’s dependence on imported energy commodities, the impact on inflation of sustainably high oil and gas prices on the demand side would be straightforward, with a potential negative bearing on household disposable income, and ultimately consumption. The supply side would not be exempt, though, particularly on the industrial front, where Italian firms already have to pay higher energy prices than most of their European peers. The Meloni government recently approved a decree meant to help households and businesses alike with energy bills. The risk is high that these measures will soon prove insufficient to provide relevant relief and that more will be needed.” EIU analysts added: “The conflict between Israel and the US and Iran could have considerable negative economic consequences for Italy and the wider EU, especially if it drags on and escalates to pull in other actors in the broader Middle East region. Higher interest rates to tackle an energy-driven surge in inflation would hit consumption and investment by businesses and households in Italy and elsewhere in the region.”

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