Italy's central bank sees even steeper decline for economy

An Italian cafe
Filippo Monteforte | Getty Images
An Italian cafe

Italy is heading for an even more severe economic downturn than previously forecast, and will contract by 1.9 percent this year, the country's central bank said on Wednesday.

In its July bulletin, the Bank of Italy downgraded its 2013 outlook for the country, forecasting a contraction of 1.9 percent, after projecting a 1 percent slump in January. The Italian economy shrunk by 2.4 percent in 2012.

The bank attributed its downgrade to weaker-than-expected economic activity in the first half of the year, following a slowdown in international trade and continued tensions in the credit market.

The move follows a downgrade from credit ratings agency Standard & Poor's, which earlier this month cut its rating on Italy's sovereign debt to BBB from BBB-plus, two notches above junk status.

Also on Wednesday, Italy's official statistics office revealed that poverty had surged across the country in 2012. It found that 12.7 percent of the population lived in relative poverty last year, compared to 11.1 percent in 2011. Plus, 6.8 percent lived in absolute poverty, a rise from 5.2 percent the year before.

—By CNBC's Katy Barnato