Italy economy seen stagnating in '08 and '09

By Robin Pomeroy

ROME (Reuters) - The Italian economy is in recession and won't grow this year or next, according to a Reuters poll released on Thursday, as global financial turmoil led economists to rethink their forecasts for a mild recovery in 2009.

The mid-range forecast in a quarterly survey sees gross domestic product (GDP) growth falling from 1.5 percent in 2007 to zero for two years. That compares with previous forecasts made three months ago for 0.4 percent growth for 2008 and 0.6 percent in 2009.

"For 2008 as a whole, GDP should remain flat, with absolutely no recovery next year," said UniCredit's Marco Valli.

"The ongoing deterioration in global growth and euro appreciation seen up to the summer should dampen exports, particularly in the second half of 2008. A gradual recovery will only show up in the second half of 2009."

The latest poll was taken October 8-15.

While the government's official target is for 0.1 percent growth this year rising to 0.5 percent in 2009, Italian industry is taking a much darker view. Employers' federation Confindustria expects recession in both years, with the economy contracting 0.2 percent in 2008 and 0.5 percent next year.

Inflation, which peaked at 4.2 percent in August -- more than twice the European Central Bank's target ceiling -- will average 3.5 percent in 2008, falling to 2.4 percent next year, according to the Reuters poll.

Economists' forecasts for the budget deficit worsened in the three months since the last poll. Instead of falling from 2.5 percent of GDP in 2008 to 2.4 percent in 2009, it will rise from 2.6 percent to 2.9 percent, according to median forecasts.

Italy's deficit came in at 1.9 percent of GDP last year, inside the European Union's 3 percent ceiling for the first time since 2002. The government has forecast it at 2.5 percent this year falling to 2.1 next.

Economists also increased their debt forecasts slightly, seeing Italy's public debt falling only slightly from last year's 104.0 percent of GDP to 103.8 percent in 2008 and 103.1 percent in 2009.

The news was also worse on the jobs front, with the poll indicating an unemployment rate of 6.8 percent this year, up from last year's record low of 6.1 percent and from the July poll's forecast of 6.6 percent.

The jobless rate is set to rise to 7.4 percent next year, the poll indicated, much higher than a previous forecast of 6.7 percent.

(Polling by Viviana Venturi in Milan; Editing by Ruth Pitchford)