The Bank of Italy lowered its economic forecast for 2013 on Wednesday, saying gross domestic product (GDP) would shrink by 1.9 percent after a weak first half but adding there were signs of stabilisation towards the end of the year. In its latest quarterly bulletin, the Bank of Italy, which previously forecast 1.0 percent contraction in 2013, said the economy should return to growth next year, with GDP rising 0.7 percent, but it said there was a high degree of uncertainty around the forecasts.
"There are downside risks around the recovery in activity between the end of 2013 and the beginning of 2014, linked mainly to prospects for the global economy, liquidity conditions for companies and credit supply," it said. It said improvement in the economy depended on "the full and efficient implementation of economic policy measures" and said the recovery could be at risk if a loss of investor confidence led to a rise in Italy's borrowing costs. "The pursuit of targets for consolidating public accounts is a necessary condition for containing risk premiums," it said. The central bank also said there was little prospect of an improvement in Italy's unemployment rate, which it said would rise from some 12 percent in 2013 to nearly 13 percent next year, with no improvement until the second half of 2014.