Vodafone Chief Executive Vittorio Colao is to lead another close look at costs across the group because he does not expect the economy to improve in many markets, he said on Thursday.

Speaking at the Morgan Stanley Technology, Media and Telecoms conference in Barcelona, Colao said Italy was at a crucial moment in terms of consumer confidence as a new government decides how to impose austerity measures.

It has also taken a recent writedown in Greece and Spain is hampered by a poor market structure and weak consumer spending, he said, but Britain, Germany and the Netherlands have held up well.

Vodafone has a medium term target to achieve annual growth in organic service revenue of 1 to 4 percent and this metric was towards the lower half of the range at 1.3 percent in the second quarter.

We gave (a forecast) of 1 to 4 in certain conditions and the reason for giving 1 to 4 was because you don't know exactly where you will end up, he said. It depends so much on how the European thing will unfold.

I honestly wish to be able to be a little bit higher which means that we have to do hard work on costs. I will start another big look at costs now until next year because I don't know exactly where the economy is going.

Colao, an Italian, said he welcomed the new government there and said it could bring in a combination of reforms to introduce austerity and also changes to bring development where it's needed.

Do I think Italy is going to be hard for a number of quarters? Yes but a lot will depend on the consumer confidence more than the fundamentals, he said.

The consumer confidence side of Italy is super important because there is a lot of wealth but wealth can either be spent or kept under the mattress. That is the delicate point and I think it is going to be clear in the next few months.

Despite the pressure on costs, Colao said the group could spend more on capital expenditure in certain markets, such as Britain, but said it would not be significantly higher.

Can I see a little bit more capex? he said. Maybe but a huge amount? No

(Reporting by Kate Holton; Editing by Mike Nesbit)