Italy slides into recession for third time since 2008

Italy slid into recession for the third time since 2008 in the second quarter, underlining the chronic weakness of the eurozone’s third largest economy and pressuring prime minister Matteo Renzi to complete promised reforms.

Figures released yesterday by Italy’s statistics agency ISTAT showed that gross domestic product unexpectedly declined by 0.2% in the second quarter of the year, from the previous three months.

A Reuters poll of economists had forecast growth of 0.2%.

The economy also shrank by 0.1% the first quarter, meaning that it has returned to recession, which is defined as two consecutive quarters of contraction.

Unions and opposition parties said the figures showed Mr Renzi had failed to address the problems of the country, which the leftist SEL party said faces a “real economicdisaster”.

Italy has posted only one quarter of growth since mid-2011, expanding by 0.1% in late 2013. Adjusted for inflation, second quarter GDP was the lowest for 14 years, ISTAT said.

Italian stocks fell more than 2% after the data and the risk premium between Italy’s 10-year bonds and those of Germany widened by 12 basis points from Tuesday’s close.

Mr Renzi has announced ambitious labour and tax reforms to revive growth needed to curb Italy’s €2tn debt burden, but progress has been slow, with his energies taken up for weeks by a draining parliamentary battle over constitutional reform.

His calls for a more expansive interpretation of EU budget rules have been met sceptically by partners, who fear slackening fiscal discipline will simply push up the debt — already the world’s fourth biggest — without growth.

Reuters