Italy in recession, headache for Monti

2012-03-12 13:29

Rome - Italy is in recession, final data confirmed on Monday, underscoring the difficulties facing Mario Monti’s technocrat government as it grapples with a shrinking economy dragged down by austerity measures and a debt crisis.

Italy’s economy shrank 0.7% in the fourth quarter of 2011, following a 0.2% decline in gross domestic product (GDP) in the third quarter.

Monti, who rushed through a €33bn austerity plan in December and is now working on reforms to boost growth, is due to meet Germany’s Chancellor Angela Merkel on Tuesday for talks in Rome.

Germany’s economy contracted by 0.2% in the fourth quarter but analysts are expecting Europe’s largest economy to pick up steam again this year, while Italy is seen lagging.

Weak consumption in the eurozone’s third-largest economy weighed heavily in the fourth quarter, while investments and inventories also declined but net exports contributed positively.

“Domestic demand is the weakest link, the area hardest hit by fiscal tightening,” said Paolo Mameli from Intesa Sanpaolo, who said GDP would likely decline by a similar rate in the first quarter of 2012.

Italy’s national statistics office ISTAT said GDP fell 0.4% year-on-year (y/y) in the fourth quarter, revising a preliminary estimate of a 0.5% fall.

The data lagged a eurozone average of -0.3% quarter-on-quarter and 0.7% y/y. Economic indicators are pointing to a further slowdown for most of 2012 in Italy, which has been the most sluggish economy in the eurozone over the last decade.

The Organisation for Economic Cooperation and Development said on Monday there were tentative signs of economic improvement in the eurozone.

Analysts polled by Reuters in January expected GDP to shrink by about 0.6% in the first quarter of this year.

Data last week showed industrial output was much weaker than expected in January, plunging 2.5% and marking an extremely poor start to the year.

The Bank of Italy forecasts a 1.5% full-year contraction in 2012, far steeper than the government’s official projection of -0.4%.

Monti’s austerity measures including spending cuts, tax hikes and pension reform and are aimed at balancing the budget in 2013, though critics say they will weigh on Italy’s already chronically low growth rates.

Market concerns about the sustainability of the country’s €1.9 trillion public debt have calmed since Monti replaced Silvio Berlusconi in November, and yields on Italy’s 10-year bonds have fallen to below 5% from peaks close to 8% at the end of 2011.

Monti is now working on measures to stimulate the economy, and his government is due to meet with unions and employers on Monday to discuss a labour market reform to follow deregulation measures announced in January.

  • James - 2012-03-12 15:32

    Discussed Italy with a ex Sicilian last week. Gist, the South is too lazy to work and corrupt. {run by the Mafia}

      Mya - 2012-03-13 00:52

      The wealthy North has to support the south, which is a big bone of contention in Italy. There are a lot of protests by politicos wanting to fiscally separate the regions and keep the North's money to themselves to boost growth. Sicily, Calabria and Napoli and other regions around them, all gripped by mafia.

  • Kevin - 2012-03-12 18:26

    Hey soon you will be able to get a Chinese Ferrari or Ducatti. Not all bad.

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