ROME, Sept 1 (Reuters) - Italy's economy contracted by 0.4% in the second quarter from the previous three months, hit by weak domestic demand, national statistics bureau ISTAT said on Friday, revising down provisional data.
ISTAT's preliminary estimate issued on July 31 had pointed to a 0.3% drop in gross domestic product, against analysts' forecasts of a flat reading.
On a year-on-year basis, second-quarter GDP growth was lowered to show a 0.4% increase, compared with the 0.6% printout in the flash estimate.
The downward revision casts a shadow over prospects for the full year, as Prime Minister Giorgia Meloni's right-wing government prepares to draw up its 2024 budget.
Italian ministers have repeatedly criticised the European Central Bank for sharply raising interest rates, saying its policy threatens to throw the euro zone into recession.
Rome is officially forecasting full-year 2023 growth of 1.0%, slowing sharply from the buoyant 3.7% rate in 2022.
Until a few weeks ago the government was describing the 2023 forecast as conservative, with Economy Minister Giancarlo Giorgetti saying he hoped for growth of between 1.2% and 1.4%.
Italian think tank Prometeia said it did not think that growth would exceed 1% over the year.
"The Italian economy is going through a phase of substantial stagnation, but we still do not foresee a full-blown recession," it said, noting that Italy was not immune to a global slowdown and the effects of higher inflation and borrowing costs.
The breakdown of GDP components showed investments and government spending contracted sharply in the second quarter compared with the previous three months, while consumer spending stagnated.
Imports and exports both declined by 0.4%, meaning trade flows made a zero contribution to growth.
The sharp reversal in the second quarter came after a strong start to the year for what has been the euro zone's most sluggish economy since the launch of the single currency.
The first-quarter GDP gains were unrevised at 0.6% quarter-on-quarter and 2.0% year-on-year.
ISTAT said so-called "acquired growth" at the end of the second quarter stood at 0.7%, meaning that if GDP is flat quarter-on-quarter for the rest of the year, full-year growth will come in at 0.7% compared with 2022.
Reporting by Gavin Jones, additional reporting by Keith Weir; Editing by Mike Harrison
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