Industrial employers association Confindustria has lowed its growth forecast for 2011 and warned that GDP will grow even less next year unless structural reforms are adopted in the short term.
In its mid-year report issued on Thursday, Confindustria predicted that GDP this year will rise by 0.9%, compared to December's forecast of 1.1%, and, without reforms, GDP in 2012 will inch up by only 0.6%, as opposed to the 1.1% increase indicated in its report six months ago.
''The star of the Italian economy is not shinning'' the Confindustria economists said, adding ''it was a mistake to have too much optimism based on the first signs of a recovery''.
In order to lift Italy's GDP by 1% and at the same time fully meet the commitments made with the European Union on cutting the deficit and debt, Confindustria said, ''it is imperative that reforms be adopted immediately which can bolster consumer and business confidence in order to boost spending and investment''.
According to Confindustria, these reforms should include cutting red tape, speeding up public works projects, making certain service sectors more open to competition through deregulation, making government and the civil service more efficient and combating tax evasion.
The industrialists also called for tax reform which would ease tax pressure on salaried income and business and shift it to other earnings and consumer spending.
Without these reforms, Confindustria said, the government will be forced to make budget adjustments of 18 billion euros in addition to the near 40 billion it has already said it will make.
In its mid-year report, Confindustria said that, thanks to measures already taken, Italy's deficit this year will fall to 3.9% of GDP, compared to 4.6% in 2010, and then decline to 2.8% in 2012.
Italy's public debt, one of the highest in the world, will rise from last year's level of 119% of GDP to 120.1% in 2011 to then dip to 119.8% of GDP in 2010, Confindustria said.
The report predicted that consumer spending will rise by only 0.8%, compared to 1% in 2010, but it should again rise by a percentage point in 2012.
Due to soaring food and fuel costs, inflation this year is now expected to jump by 2.6%, from 1.5% last year, to then cool to 2% next year.
Unemployment should run at 8.4% of the labor force in 2011, the same as last year, and then slip to 8.3% in 2012.
In order to reduce public spending, Confindustria stressed the need to raise the retirement age and contain pay increases for public employees, given that from 1980 to 2009 real salaries for state workers jumped 43.9% compared to 26.9% for those in the private sector.
Raising the retirement age to take into account longer life expectancies, said Confindustria chief Emma Marcegaglia, ''is important to give credibility'' to the government's budget measures.
In a reaction to the Confindustria report, the consumer group Codacons came out against raising value added tax (VAT), which it said would discourage any recovery in consumer spending.
''Until household spending picks up, industrial orders cannot rebound and employment will not improve. In other words, the key to pulling out of the crisis is to boost consumer spending,'' Codacons said.
''Codacons asks the government to reduce VAT, lower the cost of living through anti-inflation policies, to once again tax higher earnings and increase competition in key sectors to ensure that Italian consumers and businesses do not have to pay charges for banks, insurance, fuel, energy and phone services which are among the highest in Europe''.