Bloomberg News

Italy Economy Contracts Most in Three Years on Recession

May 15, 2012

Italy’s economy contracted for a third quarter in the three months through March as the nation’s recession deepened amid an intensifying euro-area debt crisis. Photographer: Alessia Pierdomenico/Bloomberg

Italy’s economy contracted for a third quarter in the three months through March as the nation’s recession deepened amid an intensifying euro-area debt crisis. Photographer: Alessia Pierdomenico/Bloomberg

Italy’s economy contracted for a third quarter in the three months through March as the nation’s recession deepened amid an intensifying euro-area debt crisis.

Gross domestic product declined 0.8 percent, the most in three years, Rome-based national statistics institute Istat said in a preliminary report today. The contraction was more than the median forecast of 0.7 percent in a survey of 14 economists by Bloomberg News. GDP fell 1.3 percent from a year earlier.

Prime Minister Mario Monti’s government is implementing 20 billion euros ($26 billion) in austerity measures that helped push Italy into its fourth recession since 2001 in the fourth quarter of last year. Monti is now lobbying European leaders to craft policies to boost economic growth without widening budget deficits as spending cuts and the debt crisis cloud prospects for euro-region expansion.

“Today’s GDP outcome is particularly disappointing,” UniCredit SpA economists including Milan-based Chiara Corsa wrote in a note to investors today. “It seems that the picture won’t improve substantially in the second quarter of the year.”

Renegotiate Goals

The Italian government should follow Spain in renegotiating its deficit goals with the European Union, Stefano Fassina, head of economic policy for the Democratic Party that supports Monti in the legislature, wrote in a note today.

Today’s data “confirms, unfortunately, the unrealistic optimism of the government’s forecasts for the economic contraction in 2012,” Fassina wrote, adding that GDP will likely shrink around 2 percent this year.

Monti’s government forecasts that the euro-area’s third- biggest economy will contract 1.2 percent.

The euro dropped to its lowest level in four months against the dollar today as Greek leaders failed to form a new government after May 6 elections, meaning that a new vote will need to be held.

Italy’s economy fared worse in the first quarter than that of France, Germany and the euro area. The economy of France and the 17-nation currency region stalled in the first quarter, while Germany expanded a bigger-than-forecast 0.5 percent. Istat is scheduled to give a breakdown of Italian first-quarter GDP data on June 11.

Consumer Demand

“The contraction in the first quarter was probably due to a decline in domestic demand, and in particular private consumption and investments,” Fabio Fois, an economist at Barclays Capital in London, wrote in a note about Italy. “While austerity measures have probably hit consumers already, we think that we will have a clearer picture later in the year as most of the fiscal adjustment has still to take place.”

Italian consumer confidence plunged last month to the lowest since 1996, while business sentiment declined to a two- year low amid concern that the recession may worsen. Monti’s government forecasts that the jobless rate, at an almost 12-year high of 9.8 percent, won’t start declining until next year.

Fiat SpA (F), Italy’s biggest manufacturer, posted a wider first-quarter loss in Europe as the automaker’s sales in the region plunged. Fiat, which shut down a factory in Sicily at the end of last year, froze new investment in Europe and postponed the introduction of new models, saying it doesn’t anticipate a recovery in demand until at least next year.

To contact the reporter on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net


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