The Bank of Italy now expects gross domestic product (GDP) to grow by 0.5 percent both this year and next and then by 0.8 percent in 2028.

The previous forecast was for a 0.6-percent expansion in 2026 and 0.8 percent in 2027.

Inflation is now expected to climb to 2.6 percent in 2026 compared to a previous forecast of 1.4 percent, according to the Bank of Italy.

The central bank said it had also drawn up forecasts in a worst-case scenario in which the war continues and the price of oil remains above $120 a barrel throughout 2026.

Under this scenario, Italy would see growth fall to zero in 2026 while inflation would reach close to 4 percent, and the economy would slip into recession in 2027, with GDP declining by 0.5 percent over the year.

Italy, which is highly dependent on energy imports, was already struggling with sluggish growth before the US and Israel began their attack on Iran on February 28, sparking a Middle East war.

"Developments in economic activity and inflation will be materially affected by the length of the conflict in the Middle East and by its impact on commodity production and transport flows," the Bank of Italy report said.

"The continuation of hostilities and possibility of major damage to energy infrastructure in the Middle East could have a lasting impact on commodity prices, further weaken international trade and weigh on consumer and business confidence," it said.