By Francesca Piscioneri
ROME (Reuters) - Italy's economy will grow by 0.4% next year, national statistics bureau ISTAT said on Tuesday, slashing a 1.9% projection made in June and warning of several downside risks that could lead to an even sharper slowdown.
In its twice-yearly economic outlook report, ISTAT forecast gross domestic product will increase this year by 3.9%, a steep upward revision from its June estimate of 2.8% due to firmer than expected growth over the first three quarters.
The institute's latest projections are broadly in line with those of Giorgia Meloni's rightist government which last month forecast growth of 3.7% this year and 0.6% in 2023.
"The forecast scenario is characterized by downside risks associated with further price increases, a deceleration in international trade and the persistence of a restrictive monetary policy," ISTAT said.
Italian inflation based on the EU-harmonised index stood at 12.5% in November, preliminary data showed last week.
In 2023 expansion in the euro zone's third largest economy will be entirely due to domestic demand, while trade flows will be a marginal drag on growth, ISTAT said.
Investments are seen as the main driver both this year and next, it estimated, helped by European Union pandemic recovery funds for infrastructure and other public programmes.
Numerous forecasters have recently downgraded their outlook for Italy's economy in 2023, leaving ISTAT's projection among the more upbeat.
Employers lobby Confindustria sees zero GDP expansion next year, while the OECD expects 0.2%.
On Monday Fitch rating agency, which has had a particularly negative outlook on Italy, hiked its forecast for 2023 to -0.1% from -0.7% seen in October.
The euro zone's third largest economy grew by 0.5% in the third quarter from the previous three months, ISTAT reported last week, as an increase in consumer spending and investments offset a negative contribution from trade flows.
In Tuesday's report the statistics bureau estimated an average jobless rate of 8.1% this year, down from its June projection of 8.4%. It confirmed an 8.2% projection for 2023.
The unemployment rate stood at 7.8% in October, ISTAT reported last week, slightly lower than 7.9% the previous month.