Italy on Wednesday said its recession would deepen in 2012 with the economy shrinking 1.2 percent and delayed a target to balance its budget by 2013, warning there was still "a long way to go."
"Despite the progress made, there is still a long way to go in a context that is more favourable but still characterised by elements of uncertainty," a report approved by the cabinet that accompanied the new forecasts said.
"The coming months offer a window of opportunity that must be used," it said, pointing to "a further deterioration of the economic situation since December" as the economy entered recession in the second half of last year.
Prime Minister Mario Monti, who came to power in November to replace media magnate Silvio Berlusconi as the eurozone debt crisis hit Italy, had initially vowed to uphold the previous government's pledge to balance its budget by 2013.
HIs technocrat government has now raised the 2013 deficit target from 0.1 percent of Gross Domestic Product (GDP) to 0.5 percent, which would still be within new EU Fiscal Compact treaty limits.
The government said it would cut the deficit - the shortfall between revenues and spending to 0.1 percent in 2014 and to zero by 2015.
The International Monetary Fund (IMF) offered a more gloomy outlook on Tuesday, forecasting that Italy's deficit would only be reduced to 2.4 percent this year, 1.5 percent in 2013 and then rise back to 1.6 percent in 2014.
Wednesday's report also said Italy's's massive public debt would drop to 120.3 percent of GDP in 2012 and continue to decrease over the next few years, to 117.9 percent in 2013, 114.5 percent in 2014 and 110.8 percent in 2015. It also said the economy would start to grow again in 2013 with a 0.5-percent expansion that year, 1.0 percent in 2014, and 1.2 percent in 2015.
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