Italian GDP Unexpectedly Falls Threatening Recession Exit

Italy’s economy unexpectedly contracted last quarter, signaling the country’s failure to sustain a pullout from its longest recession on record.

Gross domestic product in the three months through March decreased 0.1 percent from the fourth quarter, when it rose 0.1 percent, the national statistics institute Istat said in a preliminary report in Rome today. The decrease contrasts with the median forecast of a 0.2 percent expansion in a Bloomberg survey of 21 economists. From a year earlier, output shrank 0.5 percent.

“Italy GDP surprised on the downside,” said Annalisa Piazza, a fixed-income strategist at Newedge Group in London. “Italian activity continues to contract and the already ample output gap keeps widening.”

An unexpected decline in Italy’s industrial production in March prompted concerns about the recovery’s sustainability in the months ahead. Earlier today in Paris, national statistics office INSEE said French GDP was unchanged in the three months through March, while the German statistics office said Europe’s largest economy expanded 0.8 percent in the same period.

Milan’s FTSE MIB Index fell 1.04 percent to 20,964.49 at 11:06 a.m. The yield on Italian 10-year bonds was little changed at 2.9 percent.

EU Forecast

Italy’s economy will expand 0.6 percent this year, less than the government estimates, the Brussels-based European Commission said May 5. That’s in line with Istat’s latest estimate and lower than Italian Prime Minister Matteo Renzi’s expectation of a 0.8 percent expansion.

The euro-region’s third-biggest economy contracted 1.9 percent in 2013 when the longest slump on record depressed domestic demand amid rising unemployment. Lower-than-anticipated GDP growth this year may hinder Renzi’s efforts to reduce the country’s public debt, which rose in March to 2.12 trillion euros ($2.91 trillion).

The government is trying to revive consumption with a cut to payroll taxes for the country’s lowest-paid employees starting this month. Renzi is also seeking to reduce an unemployment rate that remained at a record-high 12.7 percent in March for a third month.

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