Italy slips back into recession

Italy, eurozone's third-largest economy, slid back into recession as the country's gross domestic product (GDP) registered a 0.2-per cent contraction in the second quarter, according to preliminary data released by the Italian National Institute of Statistics (ISTAT) yesterday.

ISTAT attributed poor growth to weaknesses in industry, services and agriculture.

The economy had shrunk 0.1 per cent in the first quarter and the latest data indicates two successive quarterly contractions in a row indicating a technical recession.

The Q2 GDP has contracted 0.3 per cent compared to the second quarter last year.

The data indicates an uphill task for the Italian economy to recover from its worst recession in four decades.

The government had earlier predicted a 0.8-per cent GDP growth and a deficit of 2.6 per cent of GDP for the current year.

Financial services major Morgan Stanley expects zero growth for Italy for this year and a 1-per cent expansion for next year at best, adding the cycle hasn't turned yet for the battered country, which continues to lag behind the other large euro-zone countries.

The country has been reeling under high public debt and budget deficit that has resulted in stringent austerity measures and the second recession in four years.  After several quarters of negative growth, the economy had posted a 0.1-per cent growth in the last quarter of 2013.

In an interview with business newspaper Il Sole 24 Ore yesterday, the country's economy minister Pier Carlo Padoan said,''It is still hard for Italy to pull out from a very deep recession.''

He further added that despite indications, growth would fall short of forecasts on which 2014 tax and spending plans are based, Italy would not need an emergency budget and would report a budget deficit within the European Union's limit of 3 per cent of GDP.

Italy's industrial production is 25 per cent below the pre-crisis levels in 2007. The country has a jobless rate of 12.3 per cent as of June.

The minister stressed the need for planned structural reforms to be fulfilled at an even faster speed to spur real growth.

However, there are some positive signs as well, as indicated by ISTAT. Manufacturing output rose by 0.9 per cent in June compared to the previous month and by 0.4 per cent over last year, registering the biggest growth since January. Nevertheless, the output showed a 0.4-per cent decline compared to the first quarter.

Italian prime minister Matteo Renzi who took over charge in February had announced a series of measures including labour and tax reforms to stimulate economic growth and reduce the public debt. However, the progress of the reforms has been rather slow.

Further to the release of the figures, Renzi said that there was no alternative to the reforms. "So we must move forward with greater decisiveness,'' he said.

In comparison, Germany, eurozone's largest economy, is likely to post an almost zero growth in Q2 due to the Ukrainian crisis, after registering a 0.8-per cent expansion in the first quarter.

German industrial orders further declined 3.2 per cent in June after a 1.6-per cent drop in May.

According to the country's economy ministry, geopolitical developments and risk above all led to the decline in orders.

Growing sanctions on Russia by the European Union and the US for its involvement in Ukraine is likely to dent economic growth in the region.

The French economy rebounded slightly with a 0.2-per cent growth in the second quarter following a flat first quarter.

Spain, with its unemployment rate hovering around 25 per cent, reported 0.6-per cent GDP growth in the Q2.