IMF Completes 2026 Article IV Review for Italy

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Italy. [1] This also included a discussion on the findings of the Financial Sector Assessment Program (FSAP) for Italy. [2] The authorities have consented to the publication of the Staff Report prepared for this consultation. [3]

Italy's economy has continued to grow at a modest pace. Real GDP grew by 0.5 percent in 2025, in part supported by continued investment under the National Recovery and Resilience Plan (NRRP). Fiscal consolidation has continued to progress, with the primary surplus further strengthening. However, public debt remains too high and vulnerable to interest and growth shocks. Amid the increase in global energy prices, domestic inflation has picked up, reflecting Italy's dependence on imported fossil fuels. In addition, sovereign spreads, which had reached multi-year lows prior to the war, have faced renewed volatility, even as the net increase in spreads since late February has remained moderate. While employment in Italy has remained at around historic highs for the past several months, labor force participation lags peers, particularly among women and youth. The FSAP found that the financial system remains broadly sound with robust oversight and banks demonstrating resilience under severe adverse scenarios.

Growth is projected at 0.5 percent this year and in 2027. Implementation of NRRP-related investment is expected to continue to support growth. However, headline inflation is projected to rise to 2.9 percent in 2026 and remain elevated at above 2 percent next year. Over the medium term, rapid population aging and persistently weak productivity growth are expected to continue constraining growth. Moreover, uncertainty remains high, and the outlook is subject to adverse risks. For example, an escalation of geopolitical tensions could put additional upward pressure on prices, tighten financial conditions, and further weaken confidence and economic activity. Slower‑than‑planned fiscal consolidation or delays in public investment would weigh on market sentiment. On the upside, faster productivity gains from reforms, digitalization, and adoption of new technologies, including artificial intelligence, could provide a welcome impetus to growth.

Executive Board Assessment [4]

Executive Directors agreed with the thrust of the staff appraisal. They noted that the Italian economy is projected to continue to grow at a modest pace, weighed down by external headwinds and long‑standing structural challenges. In the context of heightened global uncertainties, Directors concurred that rebuilding fiscal buffers and advancing growth‑enhancing reforms, while safeguarding financial stability, are essential to strengthen resilience.

Directors welcomed progress in fiscal consolidation, supported by strong revenues and improved tax compliance. In this regard, they welcomed the authorities' commitment to fiscal discipline, and most Directors supported their planned gradual adjustment path that is aligned with the EU fiscal framework. Nonetheless, they noted that public debt remains high and vulnerable to shocks and emphasized that fiscal policy should ensure that debt is put on a decisively downward path while limiting adverse effects on potential growth. Directors observed that enhancing spending efficiency, including through digitalization and comprehensive spending review, would help limit the growth impact of consolidation. They underscored the importance of fully offsetting new spending measures with savings elsewhere. In addition, Directors emphasized that support amid higher energy prices should remain temporary, targeted, budget‑neutral, and avoid distorting the price signal. They noted that further strengthening tax compliance, rationalizing tax expenditures, and broadening the tax base would support equity and consolidation. Recalibrating public guarantees toward pre‑pandemic levels would further bolster resilience.

Directors welcomed the findings of the 2026 FSAP, showing the resilience of Italy's financial system and the progress made in strengthening financial sector oversight. They encouraged continued vigilance regarding sovereign‑bank linkages, vulnerabilities at some less significant institutions, and cyber risks. Directors supported recommendations to further strengthen supervisory agility, expand the use of macroprudential tools, address concentrated sovereign exposures, and enhance crisis management and AML/CFT frameworks. They urged the authorities to complete ongoing reforms to improve insolvency and debt enforcement processes.

Directors emphasized that ambitious structural reforms are critical to raise productivity and medium‑term growth and would also support fiscal consolidation. They observed that priorities include easing regulatory barriers, improving judicial efficiency, and deepening capital markets to foster innovation and risk capital. Addressing aging‑related pressures requires boosting labor supply and enhancing skills through enhanced education, training, and school‑to‑work transitions. Directors acknowledged the authorities' steady implementation of the National Recovery and Resilience Plan (NRRP), and stressed that sustaining reform and investment momentum and accelerating the green transition will be key to enhancing economic resilience and energy security. They highlighted that a more integrated EU single market for goods, services, capital, and labor would complement Italy's domestic reform efforts and further incentivize investment, boost productivity, and strengthen resilience.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] Under the FSAP, the IMF assesses the stability of the financial system, and not that of individual institutions. The FSAP assists in identifying key sources of systemic risk and suggests policies to help enhance resilience to shocks and contagion. In member countries with financial sectors deemed by the IMF to be systemically important, it is a mandatory part of Article IV surveillance. The last FSAP exercise took place in 2020.

[3] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/italy page.

[4] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .