Rome

Bank of Italy forecasts negative growth, 12% jobless

But says tough policies must continue despite gloomy picture

Bank of Italy forecasts negative growth, 12% jobless

Rome, January 18 - The Bank of Italy painted a gloomy picture of the recession-hit country's economic prospects on Friday, revising downwards its gross domestic product forecast for this year and predicting that unemployment will reach 12% in 2014. The central bank said in a report that it had revised downwards its GDP forecast in 2013, predicting negative growth of 1%, having previously said it expected the economy to contract by 0.2%. It said the revision was down to the "deterioration of the international climate and the continuation of the weakness of (economic) activity in recent months". It estimated that Italy's economy shrank by 2.1% in 2012. Although Italy is set to pull out of recession in the second half of this year, the nation will not post a positive gross domestic product figure for the whole year until 2014, the Bank of Italy said. It added that even then it will be only be modest growth of 0.7% and warned that there were "large margins of uncertainty" about this forecast. It said 2014 will be of a year of growth on the basis of a scenario in which there is a "gradual resumption of investments following the normalisation of finance conditions, recovery of (consumer) demand and...a climate of confidence". The end of the recession later this year will not stop employment climbing by about 1% to reach 12% of the working population in 2014, the bank said. Italy's jobless level reached a record high of 11.1% in October and stayed at the same level in November, according to national statistics agency Istat. "Employment levels will fall this year (almost by 1%) and they will stagnate again in the next," the central bank said. It added that unemployment will stabilise during 2014 but said there will be not be "a reversal of the trend". The Bank of Italy stressed, however, that the grim outlook should not be used as an excuse by the next Italian government to relax economic policy. It argued that the country must continue with the fiscal consolidation and economic reforms embarked on by outgoing Premier Mario Monti's government. "It is indispensable to consolidate the rebalancing of the public accounts in Italy and to intensify reforms aimed at reviving competitiveness and raising the potential for growth," the central bank said in a report. It added that Monti's 'Save Italy' austerity budget of tax hikes and spending cuts passed to reassure the financial markets that the country was putting its economic house in order would improve the national accounts in 2013 and 2014. The package was passed late in 2011 soon after Monti took the helm of an emergency administration of unelected technocrats after Silvio Berlusconi resigned as premier with Italy's debt crisis in danger of spiralling our of control. Italian voters are set to elect a new government next month. Former European commissioner Monti is standing for office, but his new reform ticket backed by centrist parties was only fourth in a poll released Friday by the SWG agency, with 13.7% of voters intending to back it. The centre-left alliance of Pier Luigi Bersani led with 33%, Berlusconi's centre-right coalition was second with 27.2% and the populist, anti-establishment Five Star Movement (M5S) of Genoa comedian Beppe Grillo was third with 16.8%. National statistic agency Istat also released negative economic data on Friday. Istat said Italian industrial turnover fell for the 11th straight month, by an annual 5.4%, in November. Orders fell for the 15th month in a row, by an annual 6.7%. Month-on-month falls were 0.2% and 0.5% respectively.

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