Italy on a Slow but Steady Path: Services Surge, Manufacturing Faces Chinese Pressure. Bankitalia Forecasts 0.6% GDP Growth in 2026

At the dawn of a January Thursday, as robots in a mid-sized Piedmont factory resume their shifts and servers at a major consulting firm calculate billable hours in real time, a number flashes almost unnoticed across many screens: 61.9. This marks the closing spread between Italian BTPs and German Bunds on January 16, 2026—the lowest since March 2008. A quiet financial signal of confidence, it depicts a nation maintaining balance amid global turbulence. Right now, Bank of Italy's latest Economic Bulletin notes that activity "continued to expand moderately" in the fourth quarter, buoyed by business services and an "upturn" in industry, while upholding the 2026 GDP forecast at +0.6%. Yet a clear shadow looms over manufacturing: the "intensifying Chinese competition across various sectors."

What Bankitalia Reveals

In detail, Bulletin No. 1/2026, released January 16, paints a mixed picture: the eurozone shows moderate growth with disparities among nations. In Italy, Q4 momentum stemmed from services—especially those for businesses—and an industrial rebound, but manufacturing grapples with uncertain outlooks and fiercer rivalry, fueled by Beijing's aggressive pricing and production capacity. Via Nazionale's estimates affirm a strengthening GDP trajectory post the +0.6% in 2026. The underlying message is twofold: the cycle lacks vibrancy but isn't stalled; the real battle unfolds in factories, where margins and market shares face mounting strain.

Services Surge: Insights from Conjunctural Indicators

Straddling late 2024 and early 2025, purchasing managers' surveys signaled a gradual climb above the 50 threshold for Italy's services sector: the HCOB Services PMI hit 50.7 in December 2024, up from 49.2. These align with services to businesses providing vital support, particularly as industry lingered below 50 and the broader eurozone paused. Meanwhile, from late 2025 into early 2026, European manufacturing hints at stabilization, though still contracting.

Industry Recovery: Present but Fragile

Drilling down, Istat's industrial production snapshot yields key markers: January 2025 saw a seasonally adjusted +3.2% monthly bounce, suggesting the cycle's trough neared; by November 2025, it posted +1.5% month-on-month and +1.4% year-on-year, led by capital goods and energy, while consumer goods lagged.

This patchwork revival favors capex-heavy sectors and machinery-export chains, sidelining durables.

The China Challenge: Low Prices, Overcapacity, Supply Chains

Here emerges Bankitalia's core concern: Chinese competition. 2025 accelerated Beijing's trade push in areas like electric vehicles and green products. The EU countered with definitive compensatory tariffs on Chinese BEVs last fall, ranging roughly 17–35% by producer, while pursuing negotiated deals to curb escalation. The Commission is scrutinizing other clean-tech segments, such as wind and solar, where China's EU market share dominates. For Italy—a manufacturing hub strong in capital goods and mid-auto transition—this ramps up margin squeezes and order volatility.

Eurostat data on 2024 EU green energy imports illustrates: over €11 billion in solar panels arrived, ~98% from China—high volumes at rock-bottom prices that challenge local output and drag frontier pricing. Italy's high-end componentry niches face heightened rivalry but gain from cheaper inputs in select value chains. A double-edged sword.

Monetary and Financial Backdrop: Rates Down, Spreads Down

Financially, the ECB's easing cycle slashed borrowing costs from June 2024 to June 2025, with repeated cuts bringing the deposit rate near 2%. Downstream, capital costs for households and firms eased, as Italy's sovereign spread hit unseen lows in over 15 years, closing at 61.9 points on January 16, 2026. Absent shocks, these ease credit constraints and spur investment plus spending, with lagged yet real effects.

Inflation: Low but Steady, Benefiting the Real Economy

Post-2022/23 peak, Italian inflation settled near 1-1.5% on 2025 average. December 2025 NIC index showed +1.2% year-on-year, core at ~1.9% annual mean: safeguarding purchasing power better than prior years, anchoring expectations without deflation risks. Services—tied to income and skilled labor cycles—thrive here; industry benefits on energy costs but not on shaky foreign demand or price wars.

External Demand: Mixed Signals

Exports split 2025 in two: first nine months averaged +3.5% value growth, robust in the US (+9%) via pharma and metals.

Year-end nuances emerged: November 2025 total exports dipped -0.1% year-on-year (yet +0.4% monthly), cooling toward non-EU markets, though trade surplus held at +€5.1 billion.

A snapshot of chains navigating uneven global trade, rife with frictions and targeted tariffs.