Italy Slips Into Fourth Recession Since 2001 as Economy Contracts 0.7%

The Italian economy entered its fourth recession since 2001, contracting more than economists forecast in the fourth quarter as government austerity measures weighed on growth.

Gross domestic product declined 0.7 percent from the previous three months, when it shrank 0.2 percent, national statistics institute Istat said in a preliminary report in Rome today. The contraction was more than the median forecast of a 0.6 percent decline by 22 economists surveyed by Bloomberg News.

The Italian slump contrasted with better-than-forecast performances by the French and German economies in the fourth quarter. France unexpectedly expanded 0.2 percent, while Germany contracted 0.2 percent, less than the median forecast for a 0.3 percent contraction by 43 economists surveyed by Bloomberg News.

Prime Minister Mario Monti, who took over after Silvio Berlusconi’s resignation in November, pushed through 20 billion euros ($26 billion) in spending cuts and tax increases in December. The government also approved measures to boost competiveness and cut red tape in an attempt to spur growth in the euro-region’s third-biggest economy.

The government projects GDP to fall 0.5 percent this year, while the International Monetary Fund forecasts a contraction of 2.2 percent. Bank of Italy Director General Fabrizio Saccomanni told reporters in Rome last week that he expects the economy to shrink as much as 1.5 percent in 2012.

Monti’s attempt to spur the growth needed to reduce Italy’s $2.5 trillion debt, about four times the size of the EU’s bailout fund, may be vital to preventing a break-up of the 17- nation euro region.

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editor responsible for this story: Andrew Davis at abdavis@bloomberg.net

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