As Italy was reeling from a fresh round of Moody's ratings downgrades on Tuesday, new figures were released showing at least 8 million Italians are now living in poverty and the outlook remains bleak in the short term.
More than 11 percent of families of the country's total population of 60.6 million are living in poverty, according to the national statistics agency Istat in its annual poverty report.
Nearly one in four families in southern Italy were defined as poor in 2011, with even higher rates recorded in Sicily and Calabria, the report said.
The shocking figures provoked a strong reaction from political leaders, employers and union leaders.
"The new data which adds to an already alarming picture of Italy shows that poverty is now affecting workers as well as pensioners," said Pietro Cerrito, secretary of Cisl, one of the country's largest unions.
"For the moment, there is no reason to see a reversal of this trend and it is clear that Italy has its 'poor Africa' in the south - a result of the recession, with no programs or concrete initiatives for renewal and growth. It is intolerable," Cerrito said.
Confcommercio, one of the country's main employer groups, said the figures showed that there were a growing number of people living "in unsustainable living conditions."
"Only a return to growth can resolve this serious problem that is undermining social cohesion and possibilities for Italy's development," said Mariano Bella, director of the research office of Confcommercio.
The poverty figures were released after the global ratings agency Moody's downgraded two of Italy's largest banks - Intesa Sanpaolo and Unicredit - from A3 to Baa2, after the country's overall sovereign rating was slashed to two notches above junk status last Friday.
Moody's also cut the long-term issuer and debt ratings of 23 Italian public entities, including ENI and Enel, and 14 regional governments and four local governments.
While bond yields steadied on Tuesday, the Bank of Italy forecast minus-2-percent growth of the country's gross domestic product in 2012 and rising unemployment in the year ahead.
"Despite a significant increase in participation in the job market, already seen in the first part of 2012, the rate of unemployment could go above 11 percent in 2013," the bank said in its economic bulletin.
However, one positive aspect of the bank's latest forecast was a prediction that Italy would emerge from recession early next year while the spread between the 10-year Treasury bond and the German benchmark would remain around 450 basis points.
"The recession will extend into the second part of this year but will be more limited compared to the first two quarters," the bank said. "It should finish at the beginning of 2013."
But Italy will be looking to its European neighbours to kickstart its recovery.
"The rapidity of the recovery will depend on the cohesion of the European Union and the standardization of financial markets," the bank said.
The Milan stock exchange bounced back from Moody's decision to downgrade banks and local authorities and its benchmark FTSE index rose 1.6 percent in early afternoon trading Tuesday.
Adding to Italy's economic woes was the release of disappointing economic data showing a fall in Fiat car sales in the European market.
The European vehicle producers' association ACEA noted a fall of 16.7 percent in June.
The company said in a statement that it had been "penalized by the dreadful overall results of the Italian market."
Fiat CEO Sergio Marchionne said earlier this month that Italy's largest car maker may have to close one of its domestic plants if weak demand on the European auto market continued.
Elsewhere, the International Monetary Fund on Monday predicted "further weakness" in what it called "an already sluggish global recovery."
It said risks to financial stability increased in the second quarter of 2012 because of the continued slow global recovery and fears about the quality of bank assets in Europe.
"More worrisome than these revisions to the baseline forecast is the increase in downside risks," said Olivier Blanchard, the IMF chief economist and director of the fund's research department.
Economists from the Dutch bank ING recently warned that progress on tackling eurozone debt would remain "very slow" and they forecast a 0.4-percent contraction in the economy in their June report.
ING senior economist Teunis Brosens said a "big plan" was needed for Europe and required bold steps "towards more integration and political union."
"European Central Bank President Mario Draghi hinted that such steps may be rewarded with more supportive European Central Bank action," said Brosens. "But we reckon that progress will remain very slow."
