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The Italian government cut its 2008 economic growth forecast by more than half, as slumping confidence and rising prices threaten to brake expansion to the slowest among the 15 nations that share the euro.

The $2.2 trillion economy, Europe's fourth-biggest, will grow 0.6 percent this year, the Rome-based Finance Ministry said today in a statement. That's down from a forecast of 1.5 percent in December and would be the weakest rate of growth since 2005.

Italy may be the first and only country in the euro region to enter a recession this year and may have contracted in the fourth quarter, according to Morgan Stanley economist Vladimir Pillonca. Growth is slowing just as rising food and energy prices are fueling inflation and sapping consumer and business confidence.

“If you add to the mix an international situation that is now weaker than expected, this creates a real mess in a country where productivity was already declining,'' said Luigi Speranza, an economist at NP Paribas SA in London.

The government is even more pessimistic about Italy's growth forecasts than executives or the European Union. Confindustria, Italy's largest employers' lobby that has Fiat SpA and Enel SpA among its members, cut its forecast last month to 0.7 percent, a prediction matched by the European Commission, the EU's executive body.

Tax-Dodge Crackdown

The new forecasts cast a shadow over the much-flagged government announcement that it planned to use extra tax revenue stemming from a crackdown on tax dodgers to cut income levies. With the exception of Portugal, Italians are the lowest paid in the euro area, the Paris-based Organization for Economic Cooperation and Development said yesterday check cash advance online payday loan.

“It's possible we may find extra resources since this has happened regularly in the past two years, but we will only be able to verify this in the coming months,'' Finance Minister Tommaso Padoa-Schioppa said in the statement. For the three years from 2009-2011, growth will average 1.5 percent, he said.

After lagging the EU average for more than a decade, Italy is set to be the slowest-growing economy in the region this year. The economy will grow at a fraction of the rate of its biggest trading partners, France and Germany, which will expand 1.7 percent and 1.6 percent respectively, the EU predicts.

Italy's budget deficit will rise to 2.4 percent of gross domestic product, more than the 2.2 percent formerly predicted though still under the European Union ceiling of 3 percent. The shortfall narrowed last year to 1.9 percent of gross domestic product, the least since 2000, the Rome-based national statistics office said Feb. 29. That's about half the 2006 deficit of 3.4 percent.

Inflation Rate

Growth is grinding to a halt at a time when the inflation rate is at an 11-year high of 3.1 percent. Consumer and business optimism have fallen to two-year lows as soaring energy prices leave Italians with less money to spend.

The collapse of Prime Minister Romano Prodi's government on Jan. 24 after 20 months in power has also muddied the economic outlook. Both leading candidates in the election campaign, two- time premier Silvio Berlusconi and former Rome Mayor Walter Veltroni, are promising tax cuts to help revive growth.

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