Rome, Mar 2 (IANS): Italy's economy grew less than expected in 2022, by 3.7 per cent, the country's the National Institute of Statistics (ISTAT) reported.

The government's budget deficit also overshot forecasts, Xinhua news agency quoted ISTAT as saying.

Economic growth last year was lower than the 3.9 per cent initially forecast in December.

A reduction in agricultural output damaged economic growth, ISTAT said, while a recovery in construction and service activities boosted expansion.

Growth slowed significantly over the second half of last year, with rising energy prices and trade systems negatively affected by the Russia-Ukraine war.

The economy contracted slightly in the fourth quarter, and with weak growth in the current quarter, ISTAT said that Italy could be in the midst of a technical recession -- two consecutive quarters of negative gross domestic product (GDP) growth.

Meanwhile, the country's fiscal gap -- the amount by which a government's spending exceeds its revenue from taxes and other sources -- was 8 percent.

ISTAT said the deficit was higher than anticipated due to the way the cost of tax incentives was calculated. Such incentives include those aimed at making buildings more environment friendly.

On a more positive note, the agency said Italy's overall public debt as a percentage of its GDP was slightly lower than forecast, at 144.7 per cent, down from 149.8 per cent in 2021.

Italy remains the second-most indebted country in the European Union when measured by debt-to-GDP ratio, behind only Greece, according to Eurostat.