Italian economy shrinks amid consumer slump
THE Italian economy shrank more than initially estimated in the second quarter as rising exports failed to offset a continued slump in consumer demand amid the longest recession since World War II.
Gross domestic product dropped 0.3pc from the previous three months, national statistics institute Istat said in Rome yesterday. That compares with last month's preliminary reading of a 0.2pc contraction. Consumer spending declined 0.4pc, with sales abroad increasing 1.2pc.
Confidence among Italian executives and households strengthened in August amid rising industrial output and optimism on efforts by Prime Minister Enrico Letta's cabinet to revive the euro region's third-biggest economy.
Italian bond yields have risen this month on concern about the stability of the government, with the 10-year yield rising above Spain's yesterday for the first time in 18 months.
"The latest indicators are consistent with gradual improvement: the decline in output should come to a halt in the coming months," Bank of Italy governor Ignazio Visco said.
"The downside risks to this scenario are compounded by investors' concern about possible political instability."
Italian bond yields have increased amid speculation a vote on whether to expel Silvio Berlusconi from Italy's senate will destabilise the coalition government.
The former premier said on August 30 that his People of Liberty Party may withdraw its support for the government if he is ousted from parliament.
"The political turmoil comes hand in hand with a still uncertain economic scenario," Annalisa Piazza, an analyst at Newedge Group in London, said in a note to investors.
Italy's unemployment rate fell for a second month in July to 12pc. Still, joblessness remains close to the 12.2 recorded in May, the highest since 1977.
Letta's government eased the budget austerity policies that Italy passed under his predecessor, Mario Monti, in 2011 and 2012 to fight Europe's sovereign debt crisis.
Last month, his cabinet approved a measure to cancel the payment of a controversial property levy on primary residences due this year and said it would overhaul the taxation of real estate starting from 2014.
In the second quarter, the economy contracted 2.1pc from a year ago, Istat said in yesterday's report. That's more than the 2pc drop initially estimated.