* Cuts Italy 2013 GDP forecast to -1.0 pct from -0.4 pct
* Hikes 2013 deficit/GDP forecast to 2.9 pct from 0.6 pct
* Warns next government not to back off Monti's reform path
PARIS, Nov 27 Italy's economy will shrink more
than the government projects next year and the fiscal deficit
will be far above target, the OECD said on Tuesday, underscoring
the problems facing whoever wins March's national election.
The Paris-based Organisation for Economic Co-operation and
Development forecast the euro zone's third-largest economy will
shrink by 1 percent in 2013, cutting its previous forecast of a
0.4 percent contraction made in May.
Mario Monti's technocrat government forecasts a marginal
decline of just 0.2 percent and the OECD said the deeper
recession would take a heavy toll on the prime minister's
efforts to consolidate public finances.
Italy has been in recession since mid-2011, weighed down by
tax hikes which have stifled demand, and the OECD said gross
domestic product (GDP) would shrink 2.2 percent this year, more
than its May forecast for a 1.7 percent GDP fall.
Monti's fiscal tightening has hit growth but failed to cut
the budget gap as planned.
This year's deficit will come in at 3 percent of GDP, the
OECD said, compared with Monti's 2.6 percent target, which he
revised up from 1.7 percent just two months ago.
"Fiscal consolidation of nearly 3 percent of GDP this year
weakened domestic demand and private consumption has been
falling at the steepest rate since the Second World War," the
In the next two years the gap between the report's
projections and Monti's widen further, with the OECD seeing a
deficit of 2.9 percent in 2013 and 3.4 percent in 2014, compared
with the government's goals of 1.8 percent and 1.5 percent.
"Should the OECD projection be realised, further fiscal
tightening in 2014 would be necessary to achieve the planned
debt reduction path," the report said.
Rome wants its debt burden, the second largest in the euro
zone after Greece's, to fall to 119.9 percent of GDP in 2015
from a targeted 126.4 percent this year.
Despite the difficult outlook, the OECD praised Monti's
efforts since he took office a year ago when Italy risked a
Greek-style debt crisis and said his reforms, notably of the
labour market, should eventually help lift the economy out of a
decade of stagnation.
It said the government that succeeds Monti's must "maintain
the course" on structural reforms and fiscal consolidation.
"Backing off either would damage market sentiment and
growth," it warned.