Italy could end up in recession in 2022 and 2023, in the event of a severe development of the conflict in Ukraine. The forecast emerges from one of the three scenarios outlined by Bank of Italy in its Economic Bulletin published today.
The illustrative scenarios were defined on the basis of mutually alternative assumptions on the trend in the prices of raw materials, international trade, the uncertainty and confidence of consumers and businesses, as well as supplies of natural gas. These scenarios do not express an assessment of the evolution deemed most likely for the economy in the coming years and therefore do not constitute an update of the projections for Italy.
In the most favorable scenario, which assumes a rapid resolution of the conflict and a significant reduction of the tensions associated with it, GDP growth would be around 3 per cent in 2022 and 2023; inflation would rise to 4.0 and 1.8 per cent respectively. In the intermediate scenario, formulated assuming a continuation of hostilities, GDP would increase by around 2 per cent in both years; inflation would be 5.6 and 2.2 per cent. In the most severe scenario – which also presupposes an interruption in Russian gas flows only partially offset by other sources – GDP would decrease by almost half a percentage point in 2022 and 2023; inflation would approach 8 percent in 2022 and drop to 2.3 the following year.
This wide range of estimates does not take into account possible new economic policy responses that will be essential to counter the recessionary pressures and price pressures resulting from the conflict.