Italy's economy contracted for the first time since 2009 in the third quarter under the weight of a deep debt crisis and tough austerity as a recession looms, official data showed today
Gross domestic product (GDP) shrank by 0.2% in the quarter after growing by 0.1% in the first quarter and 0.3% in the second quarter, with businesses reporting a sharp slowdown in Christmas sales. The contraction was worse than had been expected as analysts had predicted a shrinkage of only 0.1%.
Output, however, grew by 0.2% in the quarter on a 12-month comparison.
The Istat data agency said imports fell by 1.1% and exports by 1.6% between July and September, while consumption went down by 0.3% and investments by 0.8% - the latest in a row of negative results.
"We are in recession," Economic Development Minister Corrado Passera said last week, as the government prepares to implement a draconian austerity plan of tax increases and pension reforms to balance the budget by 2013.
The most widely used definition of a recession is two consecutive quarters of contraction, which means the economy would have to shrink again in the fourth quarter for Italy to be officially considered in recession. But Italy slipping into recession is widely considered as inevitable.
Prime Minister Mario Monti's new government is forecasting that output will shrink by 0.4% in 2012 but others are far more pessimistic. The business federation Confindustria is predicting a 1.6% contraction and the bank association ABI is predicting -0.7%.
The government says it expects growth to resume in 2013 with 0.3% expansion but critics say there is little in the latest package of austerity measures due to be adopted this week that could revive the economy.
Monti has stressed that Italy faces a Greek-style financial crisis if the austerity measures are not formally approved by parliament. Italy has been stuck in a low-growth, high-debt spiral for years and a recent plunge in investor confidence has pushed its borrowing rates to record highs, raising concern that this will add a further burden to the economy.
The rate on 10-year government bonds rose today to 6.676%, compared to 6.571% yesterday. Fears of an imminent debt blow-up when the rate recently hit as high as 8% have, however, receded since Monti replaced Silvio Berlusconi last month.
Fitch warns of 41 Italian local govts downgrades
Fitch ratings agency warned today it could downgrade the credit ratings of 41 Italian local governments including city halls in Milan, Rome and the country's wealthiest region, Lombardy.
The administrations were being put on "rating watch negative" following a similar warning for Italy's sovereign rating by Fitch on Friday. Fitch also put 11 state entities including the post office on watch.
"The rating actions mirror that on Italy's sovereign long-term issuer default rating" on December 16, the agency said in a statement.
Fitch said on Friday that it was reviewing the credit ratings of six euro zone countries, including Italy, which could see its A+ rating downgraded.
"The rating actions primarily reflect the application of Fitch's criteria, according to which subnationals' ratings cannot usually be higher than their sovereign," it said today.
