Rome, 27 May (AKI) - Italy's northern manufacturing base is "on the brink of an abyss," a sign the government must rapidly produce policies to boost growth and help firms, the country's main business lobby warned on Thursday.

"The north is on the brink of an abyss...that would drag our country back a half-century," Confindustria president Giorgio Squinzi told the industrialists' association's annual meeting.

Weakness in recession-mired Italy's northern industrial base could foretell an economic meltdown unless the government takes immediate action, Squinzi said.

Squinzi's warning, the latest of several he has made in recent months, followed a 3 percent plunge in early trading on Milan's leading financial market amid fears that China and Japan - two of Asia's largest economies - are showing significant signs of stress.

Only a return to growth can pull Italy out of recession and boost employment and productivity, Squinzi said saying it must be at the heart of the government's agenda.

"Industrial manufacturing must be a cornerstone of government policy. Because industrial production equates to employment and that means less insecurity and more protection, higher salaries and stronger domestic domand," he said.

Over the decade between 1997 and 2007, the Italian economy's annual growth was one percent lower on average than the eurozone's, he noted.

Italy has been been in recession for 21 months - its longest since statistical record keeping began in the 1970s and the economy shrank 0.5 percent in the first quarter of the year.

"Strong growth must be the sole objective for now," Squinzi said.

"Employment has dwindled dangerously and has collapsed among young people. There are over three million people out of work," Squinzi stressed.

Italy's jobless rate is close to 12 percent and one in four young people are not in work or studying, according the central statistics institute Istat.

Squinzi called for urgent, "structural" reforms to cut payroll taxes and the regional business tax Irap, as well better access to credit and less red-tape.

"We absolutely must cut the tax wedge which at 53 percent is the highest among industrialised countries," he said, referring to the difference between the cost of an employee and their net earnings.

Italy's prime minister Enrico Letta, who attended the Confindustria meeting said industry could count on the new coalition government's support.

"The fact that we are here together shows we are on the same team," Letta said.