The International Monetary Fund (IMF) on Wednesday predicted that the Italian economy would be in recession both this year and next year, according to Italian News Agency ANSA.
In its latest World Economic Outlook, the IMF forecasts that Italy's gross domestic product will retreat by 0.1 percent this year and by 0.2 percent in 2009.
The IMF had previously predicted that Italy would have zero growth this year, while the latest government forecast for 2008 put GDP up by 0.1 percent, which was in line with the more recent predictions by the European Union and the Organization for Economic Cooperation and Development (OECD).
However, last month, Italy's industrial employers association Confindustria foresaw a 0.1 percent drop in GDP this year, with a rise of 0.4 percent in 2009.
This was before the international economic slowdown sparked by the global credit crunch, which grew out of the sub-prime loan crisis in the United States.
If Italy's economy does retreat, it will be the country's third post war recession after the one in 1975 provoked by the oil crisis and the one in 1993 triggered by a public finance crisis.
In its new report, the IMF said the only euro zone economy doing worse than Italy's was Ireland, which after years of strong growth is now expected to drop by 1.8 percent this year, with GDP falling another 0.6 percent in 2009.
According to the IMF, Italy is going to suffer not only because of the global credit crunch, but also for its failure to implement structural reforms, including deregulating its labour market.