Italian stock markets fell Thursday morning after a report that Italy is set to cut its 2019 growth forecast from 1% down to just 0.1%.

Bloomberg on Thursday reported that Italy is preparing to cut its gross domestic product (GDP) forecast from an earlier target after similar reports in the Italian press last week.

Banking stocks plunged by nearly 1% with the wider FTSE MIB sinking 0.5% during morning deals. The euro hit session lows and the Italian 10-year bond yield rose three basis points to 2.56%. Meanwhile, Germany's 10-year government bond yield quickly slipped to just below zero as more and more signs of weakness in the euro zone start to emerge. This is the second time in two weeks that the German 10-year bond has slipped into negative territory.

The German government 10-year bond, an important benchmark for European fixed-income assets, is viewed as a safe haven for investors. In times of uncertainty and challenging market environment, investors tend to move their investments from riskier assets into safe havens like gold and government bonds. The bond yields hitting negative territory shows there is rising demand for the paper with uncertainty in the region, which includes a slowdown in Germany and deadlock among politicians on Brexit.

Reports of Italy cutting its growth target have been in the news lately. Last week, Italy's Il Sole 24 Ore reported that the government is set to downgrade GDP along with introducing a package to boost growth.

A planned package of measures designed to lift economic growth could boost this year's GDP to 0.2%, the paper said, allowing the government to submit to the European Commission a revised deficit-to-GDP target of 2.3%. That compares with a 2.04% forecast in Italy's 2019 budget law.

"It was only a matter of time until the Italian government would have to bring down its growth forecast and raise its deficit call," Florian Hense, European economist at Berenberg, told CNBC Thursday via email.

"We expect 0% GDP growth for 2019 and the deficit will likely be way beyond 3%. Expect the conflict with the European Commission to heat up after the European elections on 23-26 May. The elections may, however, also bring a welcome shakeup in domestic policies."