Italy to Target Sub-3% Deficit in 2026, Lifts GDP Growth Forecast

Italy's government is set to confirm a commitment to bring its budget deficit below the European Union’s 3% of GDP ceiling in 2026, according to a Reuters report citing sources. The move comes as Rome also plans to raise its economic growth forecast for 2026, signaling cautious optimism even as it navigates complex fiscal constraints.

New Fiscal and Growth Targets

The government's forthcoming budget plan will reportedly target a deficit below the EU's key threshold in 2026, down from a projected 3.1% of GDP in 2025. This year's deficit is expected to align with the existing target of 2.9%.

Alongside the fiscal adjustments, Rome is raising its 2026 GDP growth forecast to as much as 1%, a notable increase from the previous estimate of 0.6%. Prime Minister Giorgia Meloni attributed the upgrade to a modest improvement in the economic outlook, the report said.

Navigating the Excessive Deficit Procedure

Meeting the 3% deficit rule is a critical step for Italy to exit the EU's Excessive Deficit Procedure (EDP), a long-stated goal of Economy Minister Giancarlo Giorgetti. The EDP places restrictions on a country's ability to implement tax cuts or increase spending, and exiting it would signal a significant milestone in Italy's fiscal consolidation to investors.

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However, hopes for an early exit were recently diminished. Italy's national statistics agency, ISTAT, confirmed the 2025 deficit stood at 3.1% of GDP, revising the figure up by €550 million. Following the data, Giorgetti stated that an exit from the procedure might now occur in 2027. A European Commission spokesperson noted that Brussels would need to see evidence of "durable" consolidation before approving an exit.

Reliance on EU Flexibility

Despite the commitment to fiscal tightening, Italy intends to utilize the EU's "national escape clause" (NEC) to gain more budgetary flexibility. This clause allows member states to raise spending to address specific challenges like high energy prices and defense needs.

Rome plans to use the NEC to secure additional deficit space equivalent to 1.5% of GDP, or approximately €34 billion, through 2028. This reliance on EU-sanctioned leeway indicates that Italy's path to fiscal stability will depend on both domestic policy and the flexibility afforded by the bloc's evolving fiscal framework.