ROME (Reuters) - Italian employers lobby Confindustria on Wednesday raised its economic forecasts for 2013 and 2014, estimating a fall of 1.6 percent this year and an increase of 0.7 percent next year but warned that political instability could threaten recovery.

It had previously forecast a decline of 1.9 percent in 2013 and an increase of 0.5 percent in 2014.

"Exports and a build up in inventories are guiding Italy's exit from recession...the exit will be slow however, said Confindustria's research unit in a report.

It added a warning that Italy would need to get past the persistent political turmoil that has undermined confidence and hindered structural reforms to the economy.

"Political stability will be crucial to bolster business and consumer confidence," it said.

Confindustria said it expected GDP to be flat in the third quarter of 2013, and to rise by 0.3 percent in the fourth quarter.

However, the chief economist of its research unit Luca Paolazzi said the forecasts were made before national statistics office ISTAT on Tuesday revised down its GDP data for the second quarter to -0.3 percent quarter-on-quarter and -2.1 percent year-on-year.

The group maintained its forecasts for the deficit at 3 percent of gross domestic product (GDP) in 2013 and 2.6 percent in 2014. It also kept its estimate for the debt at 131.7 percent of GDP in 2013, slightly tweaking its outlook for 2014 to 132.3 percent from 132.4 percent.

(Reporting By Francesca Piscioneri, writing by Catherine Hornby)