Italy just fell back into recession for the third time since 2008

ROME — Italy slipped into recession for the third time since 2008 in the second quarter, underlining the chronic weakness of the eurozone’s third-largest economy and pressuring the government to complete promised reforms.

Figures on Wednesday from statistics agency ISTAT showed gross domestic product unexpectedly declined by 0.2% in April-June from the previous three months. A Reuters poll of economists had forecast growth of 0.2%.

The economy also shrank by 0.1% in January-March, meaning it has returned to recession, defined as two consecutive quarters of contraction.

Italian stocks fell after the data and the risk premium between Italy’s 10-year bonds and those of Germany widened.

In a newspaper interview before the data release, Economy Minister Pier Carlo Padoan said that despite indications growth would fall short of forecasts on which 2014 tax and spending plans are based, Italy would not need an emergency budget.

Repeating previous assurances, he told business daily Il Sole 24 Ore that Italy would report a budget deficit within the European Union’s ceiling of 3% of GDP.

The government’s official projections for 2014 see growth of 0.8% and a deficit of 2.6% of GDP, but both Padoan and Prime Minister Matteo Renzi have said conditions have turned out worse than expected. That has fueled growing speculation that extra measures may be needed to meet EU budget targets.

Calmed by the European Central Bank, financial markets have recovered since 2011 when Italy was at the center of a crisis that threatened the future of the entire eurozone.

Even the impact of the tax break has been questioned after the head of Italy’s retail association Confcommercio said the effect on consumption had been “almost invisible”.

Full article: Italy just fell back into recession for the third time since 2008 (Financial Post)

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