The construction industry in Italy is expected to contract in real terms by 3.8% in 2025 and 5.7% in 2026, due to falling building permits, increasing public debt and weakness in the residential sector. According to the Bank of Italy, the public debt of the country reached an all-time high of €3.034trn ($3.3trn) in March 2025, a 0.3% increase compared to February 2025. In May 2025, the European Commission reported that Italy’s public debt is expected to reach 136.7% of GDP in 2025 and 138.2% in 2026. In a setback to the construction industry’s output, the annual gross fixed capital formation in dwellings declined by 6% year-on-year (YoY) in Q1 2025, according to the Italian National Institute of Statistics (ISTAT), this was preceded by a YoY decline of 7.1% in Q4 and 5.5% in Q3 2024. The Italian government is also planning to cut €4.6bn ($5bn) of the €5.8bn ($6.3bn) earmarked to fund the automotive sector during 2025–2030 period, due to a global slowdown in sales of electric vehicles (EVs). In another setback to the industry, US tariffs, including a 10% general tariff and a 25% tariff on steel, iron and automotive goods, are likely to raise short-term costs in Italy’s construction industry. These tariffs increase the price of imported machinery, materials and components, leading to more expensive projects. Although a 90-day pause has been granted for some tariffs, Italian exports to the US are still subject to the 10% base tariff, and the full 20% rate could return after the pause, adding further uncertainty for Italian exporters and developers.

The Italian construction industry is expected to recover in 2027, however, and record an average annual growth of 1.4% between 2027 and 2029, supported by investments in renewable energy and transport infrastructure. Growth will be driven by the government’s aim to increase the share of renewable energy in the total power mix from 18.5% in 2022 to 59% in 2030. In line with this, in March 2025, the national transmission grid operator, Terna, revealed its plans to invest €23.5bn ($25.6bn) from 2025 to 2034 to boost energy capacity in the country. Growth over the forecasted period will also be supported by the governmentowned railway company Rete Ferroviaria Italiana’s (FS Group) plan, announced in December 2024, to invest €100bn ($109bn) to develop the overall railway infrastructure in the country from 2025 to 2029. In another boost to the Italian construction industry’s output, a comprehensive strategic partnership agreement, worth €36.7bn ($40bn), was signed between the Italian government and the UAE government in February 2025 for 40 new projects in Italy. The projects cover various priority sectors, such as energy, artificial intelligence (AI), telecommunications and defence.

The industrial construction sector is expected to contract in real terms by 3.8% in 2025 and 1.1% in 2026, owing to weak external demand, and a decline in industrial production. According to the ISTAT, the average IPI, measured in seasonally adjusted terms declined by 3.4% YoY in the first three months of 2024; by segments, the manufacturing index fell by 4.7% YoY, while the mining and quarrying index fell by 2.6% YoY, during that period. According to the ISTAT, the business confidence index in the manufacturing industry declined by 1.8% YoY in the first five months of 2025, preceded by an annual decline of 2.3% in 2024. Over the remainder of the forecast period, however, the industrial sector is expected to recover at an average annual rate of 2.4% during 2027–29, supported by investments in manufacturing plants, coupled with government initiatives to support the small and medium-sized enterprises (SMEs). Among recent developments, in April 2025, a Canadian technology company Anaergia signed a contract with the Italian construction company Techbau for the construction of five new biomethane production plants in Italy by mid-2026. Previously, in March 2025, Metinvest Group announced a plan to invest €2.5bn ($2.7bn) on the construction of a green steel plant in the Piombino municipality by 2028.

Project pipeline

The industrial construction projects pipeline in Italy, as tracked by GlobalData and including all mega projects with a value above $25m, stands at $19.4bn. The pipeline, which includes all projects from pre-planning to execution with a value above $25m, is highly skewed towards early-stage projects, with 83.6% of the pipeline value being in projects in the pre-planning and planning stages as of June 2025.

According to the ISTAT, the construction cost index for industrial buildings grew by 2.2% YoY in April 2025, following YoY growth of 1.6% in March and 1.3% February 2025. The annual average construction cost index for industrial buildings grew by 1.4% in the first four months of 2025, increasing from 111.8 in January-April 2024 to 113.3 in January-April 2025. This was preceded by an annual decline of 1% in 2024. Furthermore, in Italy, domestic contractors dominate the project pipeline for which a contract has been awarded, being involved in 66% of projects in the pipeline by value.

Among the foreign contractors, firms from France are involved in 34% of projects for which a contract has been awarded to a foreign contractor. Austrian and Swiss contractors follow, with shares of 14% and 13%, respectively.