The Bank of Italy on Friday more than doubled its growth forecast for the current year, helped by better-than-expected first-quarter expansion in gross domestic product, while warning of "high uncertainty" from the Ukraine war.

The central bank now expects gross domestic product (GDP) to grow by 1.3% in 2023, up from its 0.6% forecast published in January.

Despite the 0.6% expansion seen in the first quarter, growth will remain moderate, the bank warned, "curbed by the effects of worsening financing conditions". 

In 2024 and 2025 it now forecasts growth of 1.0% and 1.1%, respectively, versus the 1.2% estimated for each year in January.  

Household consumption, which fell at the end of 2022, is expected to expand moderately over the three-year period at a similar pace to GDP growth, helped by declining inflation tied to lower energy costs. 

Inflation is expected to decline to 6.1% this year, then drop to 2.3% in 2024 and 2.0% in 2025, returning to the European Central Bank's long-term target. 

The forecasts assume that commodities will not be further impacted by the war in Ukraine, with prices remaining "broadly stable" over the period at lower levels than seen in 2022. 

Household consumption, which fell at the end of 2022, is expected to expand moderately over the three-year period at a similar pace to GDP growth, helped by declining inflation tied to lower energy costs

"The conflict in Ukraine is still one of the main factors for instability, which may trigger further rises in the prices of energy commodities and a deterioration in the confidence of households and firms," the bank wrote. "These projections are surrounded by high uncertainty, with risks to growth mainly skewed to the downside," it said.

Other "non-negligible risks" are related to global economic activity and its response to "monetary tightening under way in the advanced economies," which could weigh on Italian exports of goods and services.