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Italian Economy Shrinks 0.2% as Recession Enters Second Year

Italy’s economy shrank less than economists forecast in the quarter through September as the country’s fourth recession since 2001 entered its second year.

Gross domestic product declined 0.2 percent from the second quarter, when it decreased a revised 0.7 percent, the National Statistics Institute Istat said in a preliminary report today. The decline was less than the 0.5 percent median forecast in a Bloomberg News survey of 21 economists. It was the fifth quarter of contraction. From a year earlier, output shrank 2.4 percent.

With export gains failing to offset the effect of weak domestic demand, the euro region’s third-biggest economy will contract 2.3 percent this year and won’t start recovering until the second half of 2013, Istat said Nov. 5. Industrial output will keep declining in the final three months of this year, employers lobby Confindustria forecast Oct. 30.

The Italian contraction contrasted with signs of recovery in Germany and France, the euro-region’s two biggest economies. German GDP climbed 0.2 percent in the third quarter, more than the 0.1 percent forecast, and France’s economy unexpectedly expanded by 0.2 percent, separate reports showed today.

Italy entered into recession in the second half of 2011 as the global slowdown aggravated the effects of Prime Minister Mario Monti’s austerity measures aimed at taming a public debt of 2 trillion euros ($2.55 trillion), more than 120 percent of GDP. The five quarterly contractions now match the length of the country’s previous economic slump that ended in the third quarter of 2009.

Budget Cutting

“The ongoing fiscal consolidation process continues to weigh on domestic demand,” Annalisa Piazza, a strategist at Newedge Group in London, wrote in an e-mail to clients. “A rebound in export-led activity is very unlikely near term.”

Manufacturing in Italy remained depressed and Italian business confidence unexpectedly fell in October amid pessimism among executives on the outlook for the nation’s growth.

Car sales in Italy declined 12 percent in October, the Transport Ministry said on Nov. 2. Earlier this month, Fiat SpA Chief Executive Officer Sergio Marchionne said the problems at Italy’s biggest manufacturer are more severe than many of its rivals because Fiat’s home market accounts for half its euro-region sales. Fiat’s car sales in Italy are on pace to plunge to the lowest level in more than three decades this year.

Italy is living “very difficult times” because of both the economic and financial crises, Bank of Italy Governor Ignazio Visco said in a speech in Rome yesterday. The way out of recession “won’t be easy nor painless,” he added.

Istat originally reported a contraction of 0.8 percent in the second quarter.

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