Presenting the Italian central banks annual report, Governor Antonio Fazio rubbed salt in the wounds of the Italian economy, confirming the country is now in recession and deploring the impact on public finances. With growth at zero, Fazio predicted a budget deficit of four per cent in 2004 above the governments estimate of between 2.9 per cent to 3.5 per cent and the European Commissions forecast of 3.6 per cent but below the OECDs 4.4 per cent projection. Italys top central banker criticised Italian industry for being too small and costly, while failing to be innovative enough or raising productivity in relation to foreign competitors. Following this bleak prognosis, Fazio called on Italian business, public institutions and trade unions to regenerate the economy by setting realistic targets that could lead to a resumption of growth in 2006. Such a social pact could help to boost confidence and encourage industry to invest. Banks should be more supportive to industry, which would also benefit from a reduction in the controversial IRAP regional tax.