The Italian economy sent mixed signals yesterday as retail sales slumped and unemployment rose, while the employer's lobby improved its forecast for the economy as a whole in 2010 and 2011.

Retail sales shrank by 0.3 per cent compared to March and by 0.5 per cent compared to April 2009 as sales of food, particularly large retailers', took a hit, national statistics agency ISTAT said yesterday, citing preliminary data.

ISTAT also said on Thursday that the average unemployment rate in the first quarter of the year reached the highest level since 2005, growing to 9.1 per cent from 7.9 per cent in the first quarter and from nine per cent in the last quarter of 2009.

Job losses were greater in the wealthier centre-north of the country, home to the country's largest industrial groups and manufacturing districts, ISTAT said.

The country's powerful employers' lobby Confindustria however said yesterday the recovery was stronger than expected, saying that "Italy's economy is out of the recession."

The economy will grow by 1.2 per cent in 2010 and by 1.6 per cent in 2011, according to Confindustria. Previously, it had predicted a growth of 1.1 per cent for 2010 and of 1.3 per cent in 2011.