By Gavin Jones

ROME, (Reuters) – Italy’s economy will grow by 2.8% next year, the national statistic bureau ISTAT announced on Tuesday. It slashes a projection of 4.7% made in December, as higher raw material prices and conflict in Ukraine impact the outlook.

ISTAT forecasted that the third-largest economy in Europe, with a gross domestic product of 1.9%, would grow next year in its two-yearly forecasting reports.

According to ISTAT, “The future outlook is marred by significant downside risks associated with further price increases, a decrease in international trade and a rising interest rate.”

“The expectation of family and business could get worse.”

The Italian inflation based the EU-harmonised indicator (HICP), stood at 7.3% for May

ISTAT forecast that the HICP net of import energy products would increase this year at an average rate of 4.7%. It is the reference level used by employers and unions in Italy for collective salary negotiation.

ISTAT didn’t provide a forecast of the headline HICP rates including energy but predicted that the average private consumption rate (which is a proxy for inflation) would increase at 5.8%.

ISTAT has released its latest estimates of growth, below Mario Draghi’s. Mario Draghi forecasts GDP increases of 3.1% in 2019 and 2.4% by 2023.

Italy’s 2022 start was marked by a more than 2% growth carryover over last year. This means that ISTAT’s projections for the country suggest that the economy will not grow significantly from quarter to quarter during this year.

Many independent organizations are more pessimistic. Confindustria’s Employers Lobby estimates full-year growth at 1.9% while the International Monetary Fund anticipates 2.3%.

According to ISTAT last week, 0.1% growth was recorded in the economy in the first quarter compared to the prior three months. The increase in investments outweighed a decline in trade flow.

According to the economy ministry, growth will accelerate in the second trimester and the minister was optimistic that Italy would achieve the full-year growth goal of 3.1%.

ISTAT projected an 8.4% average unemployment rate this year. This is down from the 9.3% projection in December. In 2023, it forecast a further decrease to 8.2%.

According to ISTAT, the unemployment rate was 8.4% for April. This is unchanged from last month.