(Adds details, quotes, background) ROME, March 30 (Reuters) - The Italian economy could grow by around 4.25% this year, the International Monetary Fund said on Tuesday, hiking its previous forecast of 3% made in January. The IMF said its new projection, made in a report following an annual visit to Italy, was dependent on COVID-19 vaccinations being well advanced by late summer and continued economic support measures. In the last two months Italy has seen a resurgence of coronavirus infections and tougher lockdown measures. The Fund gave no clear explanation for the sharp upward revision of its forecast, which it warned was surrounded by “considerable uncertainty”. After a weak start, growth should accelerate in the second half of the year, it said. The European Commission and the Bank of Italy both forecast Italian growth of below 4% this year, following a record 8.9% contraction in 2020. Rome’s official forecast of a rebound of 6% this year, which dates back to last September, is expected to be cut to slightly above 4% when it is updated next month. Economy Minister Daniele Franco said last week that he expected gross domestic product declined in the first three months from the previous quarter, but would recover in the second quarter and accelerate thereafter. The IMF warned that Italian banks’ loan quality was expected to weaken once temporary support policies expire. It encouraged the Italian authorities to maintain an active secondary market in non performing loans and to “plan to take prompt, targeted action to deal with any individual distressed banks”. The European Union’s Recovery Fund could allow an investment boost for the euro zone’s third largest economy, the report said, urging Italy to push back some public investment in order to better prepare projects and raise spending efficiency. Beyond the Recovery Fund, Italy would benefit from a “comprehensive, base-broadening tax reform” which would promote growth while tackling tax evasion, the Fund said. (Reporting by Gavin Jones; Editing by Crispian Balmer)