A woman uses her card to pay the bill in a restaurant in Milan, Italy, October 2, 2020.
A woman uses her card to pay the bill in a restaurant in Milan, Italy, October 2, 2020. Reuters / FLAVIO LO SCALZO

Italy's economy will grow by 2.8% this year, national statistics bureau ISTAT said on Tuesday, slashing a 4.7% projection made in December as high raw material prices and the war in Ukraine weigh on the outlook.

In its twice-yearly forecasting report, ISTAT projected that gross domestic product in the euro zone's third largest economy will increase next year by 1.9%.

"The outlook for the coming months is marked by strong downside risks linked to further price rises, a decline in international trade and a rise in interest rates," ISTAT said.

"The expectations of families and businesses could worsen significantly."

Italian inflation based on the EU-harmonised index (HICP) stood at 7.3% in May.

ISTAT projected that net of imported energy products the HICP would rise this year at average rate of 4.7%. This sub-index is used as a reference level by Italian trade unions and employers for collective salary negotiations.

ISTAT did not provide a forecast for the headline HICP rate including energy, but estimated that the private consumption deflator, which is a close proxy for the inflation rate, would rise at an average rate of 5.8% this year.

ISTAT's latest growth estimates are below those of Mario Draghi's government, which has forecast GDP increases of 3.1% this year and 2.4% in 2023.

Italy began 2022 with a strong growth carryover from last year of more than 2%, meaning that ISTAT's forecasts imply the economy will grow only modestly from one quarter to the next throughout this year.

Several independent bodies are even more downbeat. Employers lobby Confindustria has estimated full-year growth of 1.9%, while the International Monetary Fund expects 2.3%.

The economy grew by 0.1% in the first quarter from the previous three months, ISTAT reported last week, as an increase in investments offset a negative contribution from trade flows.

The economy ministry said growth would accelerate in the second quarter and it was confident Italy would meet the government's full-year growth target of 3.1%.

ISTAT estimated an average jobless rate of 8.4% this year, down from its December projection of 9.3%. It forecast a further decline to 8.2% in 2023.

The unemployment rate stood at 8.4% in April, ISTAT reported last week, stable from the month before.