Italy's statistical office lowered its economic outlook for 2013 citing reduction in domestic demand.
In a report released on Monday, Istat said the economy will contract 1.4 percent in real terms in 2013, revised down sharply from a 0.5 percent contraction estimated in November. But Istat sees a gradual recovery next year.
The decline in domestic demand will only be partially offset by the positive contribution of external demand in 2013. Moreover, total investment is forecast to fall due to tight credit conditions and persistent negative economic sentiment.
Reflecting weakness in households' purchasing power and rising unemployment, private consumption will fall further, it said.
The economy is estimated to grow 0.7 percent next year with an improvement in private spending. Investment is also projected to rebound, underpinned by buoyant exports.
Istat said downside risks to forecasts reflect weaker external demand and upside risks are related to higher investment and consumption effects.
The statistical office forecast the jobless rate to rise to 12.3 percent next year from an estimated 11.9 percent this year.
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