Italy business lobby sees deeper recession

By Antonella Cinelli

ROME (Reuters) - Italy's economy will contract more than expected this year and its debt and joblessness rates will continue to rise, industry body Confindustria said on Thursday, slashing its forecasts.

Confindustria said gross domestic product would shrink 1.9 percent in 2013, against a previous estimate of a 1.1 percent decline, and saw public debt rising as the government of Prime Minister Enrico Letta juggles tight finances and a pledge to coax growth from a economy in its longest post-war recession.

It said Italy would see a "very slow" recovery in the fourth quarter of 2013, and that the economy should return to growth in 2014, but cut forecasts to 0.5 percent from 0.6 percent growth.

There were some positives, however.

"There are certainly a series of signs that indicate we have hit bottom: car registration figures, some indicators on the evaluation of families and businesses," said Luca Paolazzi, head of the association's research unit.

The business lobby hiked its debt to GDP ratio forecast to 131.7 percent in 2013 from 126.4 percent, and saw it rising to 132.4 percent in 2014 from a previous 125.4 percent, rather than fall to 129 percent in 2014 as seen by Rome's targets.

It saw Italy running a fiscal deficit of 3 percent in 2013, a rise from 1.9 percent to reach the maximum level allowed under European Union rules. The 2014 deficit was hiked to 2.6 percent from 1.8 percent.

Last month the European Commission recommended Italy should be removed from the EU's excessive deficit blacklist, which would put an end to strict monitoring of Italian finances which began when it breached the 3 percent limit in 2009.

The study said in order to stick to this limit, finances would need to be "carefully monitored due to the negative impact on public finances from a worse economic performance than indicated in official government documents."

The report said employment levels would continue to fall until mid-2014. Italian unemployment hit 12 percent in April, the highest level on record, and joblessness among people under 24 is at an all-time high above 40 percent.

(Writing by Naomi O'Leary Editing by Jeremy Gaunt)