Confindustria expects the Italian economy this year to expand only 1 percent, compared to its prior 1.2 percent growth expectation.
The group also cut its forecast for next year's gross domestic product growth to 1.1 percent rather than the previously expected 1.3 percent.
"The summer and fall slowdown was decisively deeper than expected," Confindustria said. "And 2010 will end with almost stagnated industrial production."
The group said it dosn't expect Italian growth to return to pre-recession levels until 2015.
Italy's economy in 2009 contracted 5.1 percent amid the worst recession in more than 60 years.
Joblessness hit 8.6 percent in Italy in October, up 0.3 percent from the previous month, according data released by OECD. Confindustria said unemployment will rise further to 8.9 percent in 2011, before starting to drop gradually in 2012.