The European Commission today slashed its forecasts for Italy's economic growth in 2019 and 2020, saying uncertainty over government policies and higher borrowing costs have pushed the country into a recession.
Italian gross domestic product was likely to grow by 0.2% in 2019, the Commission said, down from 1% in 2018.
The Commission had forecast growth of 1.2% last November.
In 2020, the Italian economy was likely to expand by 0.8%, "helped by a positive carry-over effect and two more working days", the Commission said.
It had forecast 2020 growth of 1.3% in November.
Italy's GDP contracted 0.1% in the third quarter and 0.2% in the last three months of 2018, putting the economy into a technical recession for the first time in five years.
"The recent slackening of economic activity is more attributable to uncertainty related to the government's policy stance and rising financing costs took its toll," the Commission said.
Italy's borrowing costs surged in the second half of 2018 as investors grew worried that the populist government in Rome wanted to borrow more to finance generous welfare and pension policies.
This was despite the fact that Italy already has the second-highest public debt in Europe at 132% of GDP.
"What Italy needs is deep structural reforms and decisive action to bring down high levels of public debt, in other words, responsible policies that support stability, confidence and investment," Commission Vice President Valdis Dombrovskis said.
The Commission forecast Italian quarterly growth would be zero in the first three months of 2019 and just 0.1%in the second quarter compared to the previous three months.
Italian Economy Minister Giovanni Tria played down the economic difficulties, saying growth had stalled but it was wrong to say the country was in a recession.
"For now, we can talk about a setback rather than a real recession," Tria told parliament.
But he added that indicators showed that Italy was facing "growing difficulty in maintaining previous output levels".
The weak economic performance raises questions over whether Italy can deliver the planned budget deficit of 2.04% of GDP this year - a hard-won compromise agreed with the Commission last year.
The Commission had wanted to put Italy into an EU disciplinary procedure, which could mean fines, over Rome's plan to increase the budget deficit to 2.4% of GDP in 2019 through tax cuts and spending on welfare and earlier pensions.
In the end, Italy avoided the disciplinary steps by cutting the target to 2.04%, but that assumed economic growth would be 1%.
The Economy Minister said that the government had no plans to adopt corrective measures to rein in the budget deficit.