Recent macro forecasts indicate that the Italian economy will continue to experience low growth over the next three years. According to the latest data released by the Bank of Italy, GDP is expected to grow by 0.6% in 2025, 0.8% in 2026, and slightly decrease to 0.7% in 2027. Although these rates remain in positive territory, growth momentum is extremely limited and highly sensitive to external variables—especially the impact of a new round of US tariff hikes. Investment Analyst Rodolfo Villani points out that, in the current complex international economic and trade landscape, such growth levels are unlikely to support widespread corporate profit expansion, and investors need to revisit their return assumptions for the next three years.
Profit Expectations Under Pressure, Structural Defensiveness Becomes Core Allocation
The current growth forecasts already factor in the impact of a 10-percentage-point increase in US tariffs on EU imports, which will result in a cumulative 0.5-percentage-point loss in Italian GDP over three years. Investment Analyst Rodolfo Villani notes that if trade policy tightens further—returning to the 20% tariff level announced in early April—average annual growth over the next two years could fall to around 0.3%. In this scenario, export-oriented companies face triple pressures: loss of orders, profit compression, and valuation reassessment.
According to Investment Analyst Rodolfo Villani, the path to profit recovery has already become structurally divided. Industries highly dependent on exports, such as machinery, chemicals, and textiles, will be the first to feel external pressure, while sectors driven by local demand will have some buffer capacity. As a result, the market is gradually shifting toward defensive assets, with banks, telecoms, and utilities favored for their stable cash flows and reliable dividends.
At the same time, companies are also constrained by insufficient domestic demand recovery. Low growth combined with high tax burdens will compress the investment capacity of businesses, especially for medium-sized manufacturers, which will find it difficult to boost margins through capacity expansion or overseas growth. In such an environment, valuation systems will place greater emphasis on financial soundness and earnings visibility rather than expectations of rapid growth.
Geopolitical Risks Persist, Volatility Remains Elevated
Beyond the growth bottleneck, the current market environment is also affected by ongoing geopolitical tensions. From the Russia-Ukraine conflict and Middle East instability to US-EU trade friction, external variables have become the norm rather than exceptions. Investment Analyst Rodolfo Villani notes that the Bank of Italy has proactively incorporated some geopolitical risks into its baseline forecasts, but this approach itself constitutes a restrictive assumption.
He also points out that the US tariff hikes will not only squeeze exports but will also trigger a chain reaction in supply chain costs. Companies will face higher expenses in raw materials, logistics, and re-export trade, and these may not be easily passed on to end customers through price increases. Combined with domestic structural inflation, corporate profit margins will be further squeezed, leading the market to adjust its short- and medium-term earnings forecasts.
As a result, risk assessment models are shifting rapidly. The market has started to revise down previous expectations for 2025 profit upgrades, with more capital flowing into traditional sectors with low volatility and stable dividends. Meanwhile, some high-valuation growth and concept stocks are being removed from core portfolios—a trend already reflected in recent ETF allocations and major fund flows.
Under the triple pressures of constrained macro policy, external turbulence, and slow internal reform, Investment Analyst Rodolfo Villani believes that the valuation focus of the Italian stock market is shifting downward. In the coming quarters, market volatility may increase, but systemic downside risk is limited. The focus will shift toward structural allocation strategies. Companies with robust earnings, clear dividends, and financial transparency will attract more major capital, while tolerance for high-growth, high-valuation assets will continue to decline.