Higher tax revenues improve the outlook without resolving structural weakness.
ROME, ITALY
Italy’s economy could expand by close to 1% in 2026, outperforming the government’s earlier projection but remaining behind faster-growing European economies such as Spain. Economy Minister Giancarlo Giorgetti said growth had already reached approximately 0.8% and could approach 1% if favourable indicators continue. The estimate has not yet become an official government forecast.
The improvement arrives as Prime Minister Giorgia Meloni’s administration begins preparing the 2027 budget. Stronger economic activity and employment have increased tax receipts, potentially providing the government with additional fiscal flexibility. During the first seven months of 2026, Italy collected €346.1 billion in tax revenue, an increase of €9.4 billion—or 2.8%—from the corresponding period in 2025.
Direct-tax revenue reached €200.7 billion, rising by 3.2%, while indirect taxes increased by 2.2% to €145.5 billion. Personal income-tax receipts totalled €138.5 billion, and value-added-tax revenue reached €100.3 billion. Energy excise duties fell by 8.5%, partly reflecting temporary reductions introduced to protect consumers from higher energy prices.
Economist Pietro Reichlin of LUISS University cautioned that the figures do not represent a decisive transformation of the Italian economy. Growth has improved across much of the European Union, leaving Italy near the bottom of the regional ranking alongside Germany and France. Spain continues to expand more rapidly, supported by stronger employment growth and migration, among other factors.
Italy’s central weakness remains low productivity. Employment may increase the tax base, but jobs generating limited added value do not necessarily produce stronger wages or lasting improvements in living standards. Investments financed through the European recovery programme have supported activity, yet they have not eliminated problems that have constrained Italy since the late 1990s.
The additional revenue also cannot automatically finance permanent tax reductions or new spending. Before incorporating it into the 2027 budget, the government must determine how much reflects lasting economic expansion rather than temporary inflation, wage adjustments or exceptional collection patterns. Italy must simultaneously control its deficit and service one of Europe’s largest public debts.
An ageing population and declining birth rate further restrict the government’s choices by increasing pressure on pensions and healthcare. The resulting budget is therefore expected to remain cautious. Approaching 1% growth offers Italy modest relief, but without greater productivity and demographic resilience, higher revenue will provide breathing space rather than a durable solution.
Growth creates opportunity, but productivity determines whether it lasts.