Friday, May 29, 2026-Bank of Italy Governor Fabio Panetta has warned that Italy’s economy is losing momentum as geopolitical instability, rising energy costs, and weaker demand across Europe continue to weigh on growth.
Speaking during the central bank’s annual economic assessment, Panetta said the conflict in the Middle East and broader global uncertainty are undermining an already fragile outlook for both Italy and the wider Eurozone. He cautioned that economic activity could stagnate or even contract if current pressures intensify.
Panetta also raised concerns over inflation, warning that in a worst-case scenario Eurozone inflation could climb above 6% if energy disruptions continue and price shocks spread across multiple sectors.
According to Bank of Italy projections, prolonged instability affecting oil and gas supplies could significantly weaken growth while driving a new wave of inflation across Europe. The warning comes as Italy continues to struggle with weak productivity growth, slowing domestic demand, and high exposure to energy market volatility.
The remarks highlight growing fears of a stagflation-like environment where weak growth and rising prices collide, creating difficult choices for policymakers and businesses.
Analysts say Europe’s heavy dependence on imported energy leaves the region vulnerable to prolonged geopolitical shocks, while governments face increasing pressure to strengthen competitiveness, investment, and economic resilience. As inflation risks rise again, markets are closely watching how European institutions respond to mounting economic uncertainty.
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