Italy economy to shrink 1.4% in 2013, figures forecast

Sale in Italian shop Private consumption is forecast to fall further this year

Italy's economy will shrink by 1.4% this year, a much sharper contraction than previously forecast, according to the national statistic agency.

Istat forecast that Italy will post 0.7% growth in 2014, but added that unemployment will reach a record high of 12.3% next year.

Istat predicted in November that the eurozone's third largest economy would shrink by just 0.5% this year.

The data underlines growing fears about the strength of eurozone economies.

Last week the European Central Bank cut interest rates to a new record low of 0.5%, and recent economic data has pointed to a slowdown in growth in Germany and France.

There have also been calls among politicians and policymakers to ease up on austerity measures, which many believe are now contributing to sluggish eurozone growth.

Istat said its downward revision for Italian growth was due to an expected reduction in domestic demand. Import growth was also expected to remain negative.

The agency also blamed "tight credit conditions and persistent negative economic sentiment".

It added: "Private consumption is expected to fall further, reflecting a decline in households' purchasing power and rising unemployment."

The forecast return to growth in 2014 was based on the projection that private consumption will boost output growth while investments grow.

Dogma

But Istat also forecast that the jobless rate would rise from 11.9% in 2013 to 12.3% in 2014.

Last week, in a gloomy assessment of the eurozone economy, the European Commission forecast that France will slide into recession this year.

The Commission also predicted that France would see unemployment rise to 10.9% in 2014 from 10.6% this year.

On Monday, France's finance minister Pierre Moscovici said that the dogma of austerity was over.

He told French radio that France would carry on reforming public finances and making structural reforms. But he said that a more "responsible attitude" to austerity cuts was now in place.

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