This report provides up-to-date projections and risk assessments of short-to medium-term macroeconomic and fiscal indicators of the Italian economy. We consider not only point and density forecasts but also assess tail risks to macroeconomic and fiscal variables. In this report, we focus on nowcasts and forecasts up to three years ahead for real GDP growth, the debt-to-GDP ratio, the deficit-to-GDP ratio, the unemployment rate, and inflation.

This report provides up-to-date projections and risk assessments of short- to medium-term macroeconomie and fiscal indicators of the Italian economy. We consider not only point and density forecasts but also assess tail risks to macroeconomie and fiscal variables. In this report, we focus on nowcasts and forecasts up to three years ahead for real GDP growth, the debt-to-GDP ratio, the deficit-to-GDP ratio, the unemployment rate, and inflation.

The results are based on a Bayesian vector autoregressive model with stochastic volatility (BVAR-SV). The choice of this model is due to its consistent performance in a comprehensive model evaluation exercise featuring a large set of competing specifications. This evaluation is documented in Boeck et al. (2024). An overview on the related econometrie techniques can be found in Marcellino and Pfarrhofer (forthcoming).

For the construction of the forecasts, we use real-time data on the Italian economy ranging from 2001 Q2 to 2024 Q2. The variables and their sources are listed in Table 1. The evaluation sample ranges from 2024 Q3 to 2027 Q2. For each target variable, we report three charts. The first one (upper-left) shows the point and density forecasts, in which we indicate the nowcast, one-, four-, and eight-step ahead forecasts distinctively. 

The predictive distribution is given in form of the 16/84 and 25/75 quantiles (i.e., 68% and 50% crdible sets) alongside the median. To assess tail performance, the second figure (upper-right) reports the expected shortfall (ES for 10/16/25 percent in shades of blue) and longrise (LR for 75/84/90 percent in shades of) of the respective variable. 

Additionally, the third figure (bottom) provides the probabilities of interesting scenarios: that real GDP growth turns negative, the change in the debt-to-GDP ratio is positive, the deficit/surplus-to-GDP ratio is below -3%, the change in the unemployment rate is positive, and that inflation is above 2%. The grey shaded area is the backcast period (in case publication lags are longer than the current quarter with analogous credible sets, otherwise, realized values), the solid black vertical line marks the nowcast, and the dotted lines are the one-quarter, one-year and two-year ahead forecast horizons.

Note that the forecasts shown in this report are purely statistical in nature. That is, we do not consider any planned changes in fiscal or monetary policy, and we solely rely on quarterly time series.