Confirmation Italy is in recession makes ECB rate rises less likely

ITALY.jpg

Italy's economy contracted for the second consecutive quarter at the end of last year, throwing the country into recession in a setback for the new anti-establishment government.

Gross domestic product fell 0.2pc between October and December, following a 0.1pc decline in the third quarter national statistics bureau Istat reported yesterday.

The decline was steeper than expected. Analysts often define two straight quarters of declining GDP as a 'technical' recession, though the Italian economy grew in 2018 as a whole and is expected to expand modestly this year.

The euro area as a whole grew a listless 0.2pc in the fourth quarter, statistics agency Eurostat said.

The data presents a quandary for the European Central Bank (ECB), which ended its bond-buying stimulus programme at the end of last year and risks running low on firepower as the economy slows.

The slowdown in growth makes any interest rate rises in the coming year ever more unlikely. Italy's government, which took office in June last year, was quick to blame its centre-left predecessors for the latest slump. Deputy Prime Minister Luigi Di Maio said the growth data "certified the failure of the entire political class which Italians sent packing" at last year's election. Prime Minister Giuseppe Conte said government measures would ensure a firm recovery from the second half of this year. Italy has been the eurozone's most sluggish economy since the start of monetary union, and few analysts believe the budget can turn things around in the face of what's now a broad European slowdown.