Italy contracts in Q3 as new austerity measures set to further curb growth
THE Italian economy contracted in the third quarter, signaling the country may have entered its fifth recession since 2001 as the government adopts new austerity measures that will further weigh on growth.
Gross domestic product (GDP) declined 0.2pc from the second quarter, when it expanded 0.3pc, national statistics institute Istat said in Rome yesterday. It was the first contraction since the last three months of 2009.
Consumer spending declined 0.2pc from the second quarter, with investment contracting 0.6pc. Exports grew 1.6pc in the quarter, while imports fell 1.1pc.
Prime Minister Mario Monti's government faces a final vote, perhaps later today, on its €30bn emergency budget plan, that aims to shield Italy from the region's debt crisis and bring down record borrowing costs.
The measures, which seek to balance the budget in 2013, mark the third austerity package this year, and the spending cuts and tax increases likely deepened the contraction in the final quarter.
"Italy technically entered a recession as we expect an even more marked contraction in the fourth quarter of minus 0.6pc," said Chiara Corsa, an economist at Milan-based UniCredit. "Looking at today's data, the main drag came from domestic demand, both consumption and investments."
Confindustria, the nation's employers' lobby, forecast last week that GDP, which has trailed the euro-region average for more than a decade, will contract 1.6pc next year.
The group predicted that the euro area's third-largest economy will shrink every quarter until the second half of 2012. A contraction in the final three months of this year would mark the second quarterly contraction, the technical definition of a recession.
"We are already in a recession, look at the numbers, we are in recession," Development Minister Corrado Passera said last week when Confindustria presented its report. The economy is "worse" than the government expected when it came to power a month ago, he added.
Fiat, the country's biggest manufacturer, closed its Termini Imerese plant in Sicily last month as part of a plan to reduce costs and improve productivity at its Italian facilities as sales of its cars in Italy slump. Fiat agreed with unions to pay €21m to support early retirement for 640 workers.