“The inconclusive results of the Italian parliamentary elections on February 24-25 make it unlikely that a stable new government can be formed in the next few weeks” Fitch said.

“The increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy amidst the deep recession.”

The election produced a hung parliament, with a centre-left coalition winning the lower house but falling short of control of the Senate, which has equal legislative powers.

Fitch said it now expects the economy to shrink by 1.8% this year, far below the most recent forecast by Mario Monti's outgoing technocrat government of a 0.2% contraction.

Italy has been Europe's most sluggish economy for more than a decade. It has been in recession since the middle of 2011 and is not expected to post any growth until the second half of this year at the earliest. GDP shrank 2.4% last year.

With the economic weakness taking a heavy toll on public finances, it added that it sees Italian public debt, the second highest in the Euro zone after Greece's, peaking this year at nearly 130% of GDP. That was a sharp upward revision from its previous forecast of 125% made in 2012.

MercoPress