ROME (AFP) - Italy's centre-left government has reacted to fresh evidence of a stalling economy by slashing its growth forecasts for this year and next.

Speaking late on Tuesday (Sept 27) after a lengthy post-dinner cabinet meeting on updated budget plans for 2017, Prime Minister Matteo Renzi said he was now making a "prudent" prediction of growth of 0.8 per cent for this year and one per cent for 2017.

That compares with figures of 1.2 per cent and 1.4 per cent forecast by the government in April. The downward revisions follows data indicating that the economy ground to a halt in the first half of this year.

Independent economists say Italy will struggle to hit even the revised targets given weak domestic demand and the crisis facing the country's debt-laden banks.

The OECD club of industrialised countries is predicting 0.8 per cent growth for both this year and next.

Mr Renzi said Italy's budget deficit would fall to 2.4 per cent of GDP this year, from 2.6 per cent in 2015, and a maximum of 2.0 per cent next year.

The latter figure is slightly above the 1.8 per cent target Italy has been set by the European Commission, which is urging Rome to cut year-on-year spending faster to reduce a debt mountain equivalent to more than 132 per cent of the entire economy.

And the 2016 budget deficit rate of 2.4 per cent is a slight upward revision from the original forecast of 2.3 per cent.

Mr Renzi said Italy would be seeking only limited 'flexibility' in the interpretation of EU budget rules - equivalent to a maximum 0.4 per cent of GDP in the assessment of its spending plans to cover the exceptional costs of the migration crisis and the deadly August earthquake in the centre of the country.

"Europe owes a serious debt to Italy," for its handling of the migrant crisis, said Mr Renzi.