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Italy’s Slump Persists in Setback for Letta Government

Pedestrian Holds an Umbrella in Rome
Italy's economy has been contracting since the third quarter of 2011. Photographer: Alessia Pierdomenico/Bloomberg

Italy’s economy shrank in the three months through September, the head of the statistics office said, prolonging a record recession and signaling that the euro area’s recovery is bypassing its third-biggest economy.

Antonio Golini, acting chairman of Istat, the country’s national statistics office, also told a hearing in Parliament in Rome that gross domestic product will fall 1.8 percent this year. That’s more than the 1.4 percent contraction Rome-based Istat projected in May.

The estimate contradicts the forecast of Prime Minister Enrico Letta’s government that the economy would stop contracting in the third quarter before returning to growth in the final three months of the year. As the wider euro region emerged from a recession in the second quarter, the Italian economy shrank 0.3 percent as export growth failed to offset the impact of rising unemployment on domestic demand.

“The economy is expected to have stabilized in the third quarter -- I’m aware that Istat said otherwise,” Finance Minister Fabrizio Saccomanni told Parliament after Golini’s hearing. “Economic activity is set for a gradual recovery.”

Saccomanni also estimated that GDP will fall 1.8 percent in 2013. That compares with the Treasury’s Sept. 20 forecast for a 1.7 contraction.

Italy’s 10-year bond yield dropped 6 basis points to 4.13 percent as of 2:40 p.m. Rome time, leaving the difference with comparable German bunds at 238 basis points.

Euro ’Laggard’

Economists predict that Italian GDP stagnated in the three months through September and see it declining 1.7 percent in 2013, according to Bloomberg’s monthly economic survey published Oct. 10.

The country’s economy has been shrinking since the third quarter of 2011. Istat will publish its first estimate for GDP in the quarter through September on Nov. 14.

“A further GDP contraction in the third quarter would confirm our assessment that despite the improvements of the last two quarters, the Italian economy is a laggard in the euro area,” said Silvio Peruzzo, an economist at Nomura Holdings Inc. in London. “Political and fiscal uncertainty is likely taking a toll on the economy constraining the recovery.”

Berlusconi’s Woes

Measures to revive the economy passed under Letta’s government have so far failed to succeed against a backdrop of a fragmented coalition jeopardized by the legal woes of former premier Silvio Berlusconi.

Most Italians are optimistic about the outlook for the European economy, though are concerned Italy won’t fully join the rest of the area in a recovery, savings-bank association ACRI said in a survey released today. Almost six out of 10 are very or quite unhappy about their personal economic situation and 41 percent are pessimistic about an economic recovery this year, the survey showed.

Industrial output unexpectedly fell for a second month in August, Istat said this month in a first indication that the country may have fallen further behind the rest of the euro area.

Italy will “critically determine the fate of the euro area” and the region won’t prosper if that country can’t restore economic growth, European Central Bank Executive Board member Joerg Asmussen said on Oct. 25.

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