Gross domestic product grew by 0.5% in the third quarter from the second and 2.6% year on year, national statistics bureau ISTAT said. Both preliminary readings were around half a percentage point higher than expected in Reuters survey of analysts, while the Treasury had said last month it expected a third quarter contraction. The government plans to raise next year's budget deficit to 4.5% of GDP, up from the 3.4% projected last month under current trends, a senior official said. Italian inflation hit 12.8% in October, the highest level since the country's EU-harmonised index was launched in 1996. Full year growth this year will come in at 3.7%, Federico forecast, above Rome's official 3.3% target.

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