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Friday September 20, 2013 MYT 7:30:02 PM
Friday September 20, 2013 MYT 7:30:55 PM
ROME (Reuters) - The Italian government on Friday cut its forecasts for the economy this year and next and pledged to correct a budget deficit that is heading for a slight overshoot.
The new forecasts, approved at a cabinet meeting, see the economy contracting by 1.7 percent this year compared with a previous projection of -1.3 percent, made in April.
In 2014, growth is now seen at 1.0 percent, down from 1.3 percent previously, yet this is still more optimistic than the expectations of most analysts.
Prime Minister Enrico Letta warned that political tensions which are undermining the stability of his left-right coalition government would have to decline for the goal of economic recovery and fiscal consolidation to be met.
The latest forecasts are "reasonable and achievable so long as there is political stability," he told reporters at a news conference.
The average forecast in a Reuters survey of analysts in July pointed to 2014 growth of just 0.5 percent, while the International Monetary Fund in August forecast 0.7 percent.
Economy Minister Fabrizio Saccomanni said he expected that growth would be bolstered by the government's drive to pay debt arrears owed to private suppliers and shrugged off recent weak data on industrial output and orders for July.
He forecast that gross domestic product would be flat in the third quarter, after eight consecutive quarters of decline, and growth would return in the last three months of the year before consolidating in 2014.
The budget deficit is heading for 3.1 percent of output this year, according to current trends, the government said, but Saccomani told reporters it was "important this is corrected quickly" in order to meet the EU's 3 percent ceiling.
(Reporting by Giuseppe Fonte, writing by Gavin Jones; editing by James Mackenzie)
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