Woman outside perfume shop in Rome
The Italian government has slashed its forecast for the economy in 2012.
It was previously predicting a 0.4% contraction in the economy, but has cut that to a 1.2% contraction.
According to the government has also admitted that it will not be able to meet its target of balancing the budget by 2013.
It now says that it will be able to balance the budget by 2015, which is still more optimistic than the IMF, which says Italy will not have a balanced budget until at least 2018.
The IMF expects the Italian economy to contract by 1.9% in 2012.
The government has raised its forecast for growth in 2013 from 0.3% to 0.5%.
The announcements followed a cabinet meeting to approve the new Economic and Financial Document.
The document predicts that Italy's debt will increase from 120% of GDP in 2011 to 123.4% in 2012.
"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," the report said.
Prime Minister Mario Monti had previously said that he would keep to his predecessor's pledge to balance the budget by 2013.
He stressed that the new forecast of a 0.5% deficit in 2013 would still be in line with eurozone rules.