Italy slashed its 2012 economic growth outlook to minus 1.2 per cent from minus 0.4 per cent yesterday and said it will miss a 2013 target for a balanced budget as officials struggle to revive the economy.

The technocrat government has raised the 2013 deficit target to to 0.5 % of GDP

“Despite the progress made, there is still a long way to go in a context that is more favourable but still characterised by elements of uncertainty,” a report that accompanied the new forecasts said.

“The coming months offer a window of opportunity that must be used,” it added.

Prime Minister Mario Monti, who came to power in November as the eurozone debt crisis hit Italy, had initially vowed to uphold the previous government’s pledge to balance its budget in 2013.

The technocrat government has now raised the 2013 deficit target from 0.1 per cent of the Gross Domestic Product to 0.5 per cent.

The government said the new figure will still be in line with the European fiscal compact treaty.

The country’s massive public debt is forecast to drop to 120.3 per cent of GDP in 2012 and to 110.8 per cent in 2015. Growth is forecast to nudge back into positive territory again meanwhile, at 0.5 per cent in 2013, one per cent in 2014, and 1.2 per cent in 2015.

Explaining its forecast for 2012, the government said: “There has been a further deterioration of the economic situation since December.”

The revised economic outlook is a blow for Monti, who implemented a series of biting reforms to rein in the debt but has struggled to make inroads with his “Grow Italy” plan, as his approval ratings faltered.

The government’s outlook contrasts with International Monetary Fund (IMF) figures which forecast a 1.9 per cent contraction in the economy this year.