Italy's economy faces growth slowdown as energy prices surge

Italy is preparing to lower its economic growth projections to reflect the impact of rising energy prices linked to the ongoing crisis in the Middle East, Economy Minister Giancarlo Giorgetti said on Thursday.

Addressing parliament, Giorgetti indicated that external pressures are beginning to challenge the country’s fiscal and economic trajectory.

Downward revisions to growth forecasts are limited and are mainly attributable to external and temporary factors, primarily the energy crisis, Giorgetti said.

External pressures drive economic adjustment

The anticipated revision comes as Italy grapples with higher energy costs, which have weighed on the broader economic outlook.

According to sources cited earlier, the government is considering reducing its growth estimate for this year to between 0.5% and 0.6%, down from the current target of 0.7%.

Similarly, next year’s growth forecast could be trimmed to a range of 0.6% to 0.7%, compared with the existing projection of 0.8%.

Despite these adjustments, Giorgetti maintained that the slowdown is largely driven by external dynamics rather than domestic weaknesses, reinforcing the government’s position that the impact should be temporary.

Deficit target faces renewed challenges

The softer growth outlook is expected to complicate Italy’s efforts to meet its fiscal targets.

The government had previously agreed with European Union authorities to reduce its deficit to below 3% of GDP this year.

However, Giorgetti acknowledged that the deteriorating economic environment could make achieving that goal more difficult.

Calls for flexibility in EU budget rules

Giorgetti also suggested that European Union authorities should consider temporarily relaxing fiscal rules if geopolitical tensions escalate further.

He referenced the EU’s previous use of the “general escape clause” between 2020 and 2023, which allowed member states to suspend budget constraints in response to the COVID-19 pandemic.

However, he noted that such measures are typically reserved for severe economic downturns across the eurozone or the EU as a whole.

Limited policy flexibility under EU oversight

Italy remains under an EU infringement procedure for excessive deficit, which restricts its ability to introduce support measures for households and businesses affected by rising energy costs.

While Rome could theoretically activate a national escape clause to deviate from fiscal targets under exceptional circumstances.

Giorgetti indicated that such a move is unlikely while the country remains subject to EU disciplinary procedures.

“Should the conditions for exiting the procedure not be met, the resulting decisions would be referred to Parliament,” he said.

Recent developments in global energy markets have further complicated the outlook.

Oil prices briefly declined following the announcement of a two-week truce between the United States and Iran, but the relief proved short-lived as logistical disruptions in the Gulf continued to hinder supply flows.

As a result, Italy’s economic projections remain sensitive to ongoing geopolitical developments, particularly those affecting energy prices and supply chains.