Italy's central bank cut its forecast for the country's shrinking economy on Friday, as tight credit conditions and a gloomy international backdrop darken the domestic outlook before a national election in February, Reuters reported. The Bank of Italy said it now expects gross domestic product (GDP) to fall by 1.0 percent this year rather than the 0.2 percent contraction it forecast in July. It also warned the budget deficit might not have fallen below 3 percent of output last year, which would stop Italy from exiting the EU's excessive deficit procedure, despite austerity measures imposed by technocrat Mario Monti's government. In a quarterly economic report that highlighted the economic challenges that will face Monti's successor, the bank said the recession that started in the third quarter of 2011 would extend well into 2013, with unemployment continuing to climb and reaching 12 percent by 2014 from 8.4 percent in 2011. The report will be unwelcome reading for Monti, who is bidding for a second term in the Feb. 24-25 vote but whose centrist alliance lags Pier Luigi Bersani's centre-left and the centre-right led by former Prime Minister Silvio Berlusconi. -- SPA
