The Italian economy will grow by 1.2% this year, national statistics bureau ISTAT said on Tuesday, raising a previous projection of 0.4% made in December on the back of a stronger-than-expected start to the year.

In its twice-yearly economic outlook report, ISTAT forecast that gross domestic product in the euro zone's third largest economy will increase next year by 1.1%.

It said growth this year and next will be driven largely by firm domestic demand, while trade flows will offer only marginal support.

Growth in Italy, traditionally the laggard of the euro zone, has consistently beaten expectations since the economy bounced back from the steep recession of 2020 during the COVID-19 pandemic.

In the first quarter of this year GDP rose 0.6% from the previous three months and increased 1.9% year-on-year, ISTAT reported last week.

The institute said its forecasts were based on "a favourable assumption" that inflation would ease over the next few months and that Italy would manage to successfully invest billions of euros of European Union pandemic recovery funds.

So far, Giorgia Meloni's right-wing government has struggled to meet the policy conditions set by the EU for the transfer of the money and has also fallen behind schedule in spending the funds it has already received.

In April the government forecast growth of 1.0% this year and 1.5% in 2024.

However, Economy Minister Giancarlo Giorgetti said last month that on the back of the latest data he was hopeful that 2023 growth may come in as strong as 1.4%.

ISTAT estimated an average jobless rate of 7.9% this year, down from its December forecast of 8.2%. It forecast a decline to 7.7% in 2024.

The unemployment rate stood at 7.8% in April, the latest data available, ISTAT reported on Thursday.