Italy slides back into recession

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Italy’s GDP unexpectedly shrunk by 0.2% in Q2 with respect to Q1 in 2014, the  Italian National Institute of Statistics (Istat) has revealed.

According to the latest release, the country’s GDP has also gone down by 0.3% compared with the same period of 2013.

The decrease was said to be caused by a general drop in the country’s three main sectors. Looking at demand, Istat said that national contribution to the GDP was equal to zero, while foreign contribution was negative.

The economy had already shrank by 0.1% in January-March, meaning it has returned to recession, which is technically defined as two consecutive quarters of contraction. This is the third time since 2008 that the Italian economy falls into a recession phase.

After the data release, Italian stocks fell and the risk premium between Italy’s 10-year bonds and those of Germany increased.

The news adds pressure on the Italian government reform plan, which Economy Minister Pier Carlo Padoan urged to implement as fast as possible.

At the start of his mandate, Italy’s PM Renzi announced ambitious labour and tax reforms to revive growth and overhauls of the justice system, the public administration and Italy’s system of government.

Economy Minister Padoan said that, despite the negative news from Istat, Italy would not need an emergency budget and in an interview to Sole 24 Ore he said that his statement was based:  “On the basis of information which I have at the moment and on the forecasts which we have updated with new information from Istat.”

Luca Mezzomo, head of Research Department at Intesa Sanpaolo, said: “We are particularly surprised by the services sector result, as the PMI had gone up by 1.6% between Q1 and Q2. […] We see a very uncertain scenario ahead of us.”

“It has been difficult to distinguish between peripheral Europe for some time, but what we have seen this year is the outperformance of countries that have implemented structural reforms and improved their competitiveness like Spain and Ireland.

“Meanwhile countries that have been slow and unwilling to embrace reforms such as Italy and France, have been a drag on the wider Eurozone economy,” said Azad Zangana, European economist at Schroders .



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