March 1 (Reuters) - Italy's economy grew by 0.9% last year, slightly more than the government's most recent forecast, but the budget deficit came in far higher than expected, data showed on Friday.

The 0.9% increase in gross domestic product (GDP) marked a sharp slowdown compared with a 4.0% growth rate in 2022, which was revised up by national statistics bureau ISTAT from a previously reported 3.7%.

This year, the Treasury is targeting growth in the euro zone's third largest economy at 1.2%, a figure considered unrealistic by virtually all independent bodies.

Most analysts forecast 2024 growth of around 0.7%.

Rome's budget deficit came in last year at 7.2% of GDP, down from an upwardly revised 8.6 in 2022 (previously reported at 8.0%) but far overshooting the official target for a second year running.

The government had targeted a 2023 ratio of 5.3%.

Meloni is targeting the deficit to fall to 4.3% of GDP this year, but the goal is threatened by a looming ruling by EU statistics bureau Eurostat over how to classify fiscal incentives for energy-saving home improvements.

These incentives have helped pushed up the fiscal gap in the last two years.

Despite the deficit overshoot, Italy's public debt - proportionally the highest in the euro zone after Greece's - fell to 137.3% of GDP in 2023 from 140.5% the year before, helped by strong inflation which increased nominal GDP.

The 2022 debt level was revised down from a previously reported 141.6%.

The 2023 result was significantly below the government's target of 140.2%

ISTAT gave the following data on Italy's GDP growth, the budget deficit, the public debt and other details of public accounts.

2023 2022 2021 GDP 0.9 4.0 8.3

Deficit/GDP 7.2 8.6 8.7

Debt/GDP 137.3 140.5 147.1 Primary balance/GDP** -3.4 -4.3 -5.2

Taxes/GDP 42.5 42.5 42.6

**public balance excluding debt servicing costs

Reporting by Gavin Jones