The European Commission cut its 2008 economic growth forecast for Italy again on Monday and warned that the country's budget deficit was back on the rise.
Publishing its spring forecasts for countries in the European Union, Brussels said it expected Italy's economy to grow by just 0.5% this year and 0.8% in 2009, stressing that this was ''clearly below its potential''.
Last November, the EC predicted a 1.4% increase in Italian GDP this year, a figure it revised down to 0.7% in February.
But the EC figures were rosier than those of the International Monetary Fund, which earlier this month revised its 2008 GDP growth forecast for Italy down from 0.5% to 0.3%.
The latest Italian government forecasts put 2008 GDP growth at 0.6%.
Brussels also revised its growth forecasts for the euro zone downwards, from 1.8% to 1.7% for this year, and for the 27-member European Union, which it said would grow 2% this year.
The EC noted that Italy was still underperforming its euro-zone peers.
''The negative gap with the euro-zone average will widen further despite the modest exposure of the Italian banking system to current financial turbulence,'' it said.
On the public accounts front, the EC report said Italy's budget deficit would rise from the 1.9% posted in 2007 to 2.3% this year and 2.4% in 2009.
It also revised its forecasts for Italy's debt mountain, which is the third biggest in the world.
It said public debt would stand at 103.2% of GDP this year compared to its previous forecast of 102.9%.
During his two years in power, outgoing centre-left Premier Romano Prodi worked hard to straighten Italy's public accounts which deteriorated sharply under Silvio Berlusconi's 2001-2006 stewardship.
Last year, the budget deficit was back to 1.9% having breached the European Union's 3% ceiling from 2003-2006.
The EC report attributed the fresh deterioration to ''extra spending and tax cuts... as well as lower GDP growth''.
EU Economic and Monetary Affairs Commissioner Joaquin Almunia has urged Berlusconi, who returns to power after winning Italy's general election earlier this month, to follow Prodi's ''extremely successful'' debt-cutting efforts.
The commissioner said on Monday that ''the main worry for Italy stems from very poor economic growth''.
Berlusconi, a 71-year-old billionaire media magnate, has warned that unpopular measures will be necessary to turn Italy's ailing economy around.
Italy is teetering on the brink of recession while consumer spending has fallen as Italians struggle with some of the lowest wages in the euro zone and a hike in inflation which has included food prices.
The near-bankruptcy of Italian flag carrier Alitalia and an ongoing trash crisis in Naples have also knocked morale.
