Italy's unemployment rate rose more than economists forecast in March to the highest point since 2000 as companies failed to hire amid signs of a deepening recession in the euro region's third-largest economy.

Joblessness increased to a seasonally-adjusted 9.8 per cent from a revised 9.6 per cent in February, Rome-based national statistics office Istat said in a preliminary report today.

The reading, the highest since the third quarter of 2000, compared with a 9.4 per cent median estimate by nine economists surveyed.

After slipping into its fourth recession since 2001 in the final three months of last year, the Italian economy probably shrank again in the first quarter as rising joblessness undermined domestic demand, employers' lobby Confindustria said.

Prime minister Mario Monti's cabinet last month forecast the economy would contract 1.2 per cent this year.

The Rome-based treasury also predicted that unemployment would not start declining until 2013. "Unemployment will keep soaring sharply as the conditions that caused it will remain," Confindustria said last month.

"There will be more job cuts and an increase in people looking for employment amid a decline in real income."

The Italian parliament will debate this month an overhaul of the labour code that the government says will spur employment. The plan gives employers more leeway to fire staff and creates a new system of unemployment benefits.

The initiative is Mr Monti's fourth major legislative effort to revamp the economy after measures in December aimed at reducing Italy's deficit and two packages earlier this year to make the country more competitive and to simplify bureaucracy. Istat originally reported a jobless rate of 9.3 per cent in February.

Bloomberg