Tuesday, 15 September 2026
Italy recorded further economic growth during the first half of 2026, although the expansion remained modest. Rising employment, a growing services sector and stronger exports provided support, while consumer activity remained relatively resilient. Manufacturing produced a less consistent performance, residential development remained subdued and higher energy costs contributed to renewed inflationary pressure. GDP increased by 0.2% during the second quarter compared with the previous three months and was 1.0% higher than in Q2 2025. The result followed growth earlier in the year and left Italy with positive momentum entering the second half, although the overall pace of expansion remained limited.
Services were the strongest part of the economy during Q2, increasing by 0.4% from the previous quarter. Industry declined by 0.5%, while agriculture was 0.2% lower. Domestic demand also contributed to growth, with household and public consumption together increasing by 0.3% from the previous quarter and fixed investment rising by the same amount. Foreign trade reduced quarterly GDP growth because imports increased by 1.7%, compared with a 0.8% rise in exports. The figures show an economy increasingly dependent on services and domestic demand while industrial activity continues to encounter more difficult conditions.
Industrial activity remained uneven. Production declined by 1.0% in June compared with May and was 0.6% lower than a year earlier after adjustment for differences in working days. Across the second quarter as a whole, however, industrial production increased by 0.4% compared with Q1. Italian manufacturers continue to operate against a difficult international backdrop, with competition from overseas producers, changes in global trade and accumulated increases in operating costs affecting different industries to varying degrees. These pressures are particularly relevant for manufacturers with high energy requirements and businesses exposed to international price competition.
Consumer activity was more resilient. Retail sales increased by 0.6% in value and 0.2% in volume during Q2 compared with the previous quarter. In June, sales were 3.1% higher in value and 1.9% higher in volume than a year earlier. Non-food retail performed particularly strongly, with volumes increasing by 3.1%, while food sales volumes were unchanged. Changes in shopping habits continue to influence the retail sector alongside the wider economic cycle, requiring conventional retailers and shopping destinations to compete increasingly on convenience, experience and the integration of stores with digital distribution.
Employment was one of the strongest elements of Italy’s first-half performance. The number of people in work increased by approximately 155,000 between Q1 and Q2 to around 24.36 million. The employment rate reached 63.1%, while unemployment stood at 5.6%. Compared with the second quarter of 2025, employment increased by approximately 246,000 people, equivalent to around 1.0%. Permanent employment and self-employment increased, while temporary employment declined slightly. The number of unemployed people was almost 10% lower than a year earlier and total hours worked also increased. The combination of rising employment and modest GDP growth keeps productivity performance an important issue for Italy’s medium-term economic outlook.
Inflation increased during the first half, largely because of energy. Consumer prices were 3.0% higher in June than a year earlier, easing from 3.2% in May. Inflation excluding energy and fresh food was considerably lower at 1.6%, showing that the acceleration in headline prices was concentrated in particular parts of household expenditure rather than being equally distributed across the economy. Energy prices increased considerably faster than the overall consumer-price index, while unprocessed food also remained more expensive than a year earlier. Higher energy costs therefore represent an important risk for both households and companies if they persist into the second half.
Foreign trade remained an important source of support. Italian exports increased by 4.5% in value during the first six months compared with H1 2025, while imports rose by 4.3%. Italy generated a trade surplus of approximately €24.5 billion during the period, compared with around €22.8 billion a year earlier. June produced particularly strong export figures, with values increasing by 9.8% and volumes by 5.1% compared with June 2025. Part of the increase was associated with unusually large shipbuilding transactions, meaning the headline annual increase was stronger than the underlying trend. Nevertheless, exports remained clearly above their level a year earlier even after allowing for this effect.
Construction and development indicators presented a mixed picture. Residential development remained restrained, with the number of dwellings authorised in new buildings during the first quarter declining by 9.2% from the previous quarter and by 0.5% compared with a year earlier. The picture for non-residential development was stronger, with authorised floor area increasing by 2.6% from the previous quarter and by 12.5% compared with Q1 2025. While one quarter does not establish a lasting trend, the figures indicate greater activity in parts of the commercial and industrial development pipeline than in new residential construction.
Investment supported by Italy’s European recovery programme remains important to the wider economy. Infrastructure, public works and modernisation projects are contributing to activity at a time when private-sector growth remains restrained. As the programme advances, the ability to convert allocated funding into completed projects will become increasingly important for economic performance. Banca d’Italia expects growth to remain modest, with its June projections anticipating GDP growth of around 0.5% during 2026 on a calendar-adjusted basis. Average inflation is expected to be around 3.1% this year before moving closer to 2% during the following two years.
The European Commission presents a similar growth outlook, expecting GDP to increase by 0.5% during 2026 and 0.6% in 2027. It forecasts inflation of 3.2% this year before a decline to 1.8% in 2027, while unemployment is expected to remain close to 5.7%. Public finances continue to constrain Italy’s economic options. The Commission expects the government deficit to decline from 3.1% of GDP in 2025 to approximately 2.9% this year. Public debt, however, is projected to increase from 137.1% of GDP in 2025 to around 138.5% in 2026 and 139.2% in 2027.
For Italy’s commercial property sector, the first-half economic environment provides different signals depending on the asset class and location. Rising employment and relatively resilient consumer activity provide support for retail, hospitality and other properties linked to household spending. Continued services growth also creates a more supportive environment for modern office space in the country’s strongest business centres. Industrial and logistics property faces a more varied backdrop. Export growth, infrastructure investment and manufacturing projects continue to create opportunities, but weak industrial production means demand is unlikely to develop evenly across the country. Major ports, transport corridors and established manufacturing clusters are likely to remain particularly important to the sector.
The increase in authorised non-residential development also indicates continued developer activity despite Italy’s low national growth rate. Residential construction remains more constrained, reinforcing supply pressures in cities and regions where employment, education and population movements continue to generate housing demand. Italy entered the second half of 2026 with an economy that is still expanding but at a restrained pace. Employment, services and exports were among the stronger elements during H1, while manufacturing remained inconsistent and residential development subdued. Higher energy costs have also complicated the inflation outlook. The challenge for the remainder of the year will be turning investment, employment and external demand into broader and more durable economic growth.
Source: CIJ.World Research & Analysis Team
