Renzi feels the chill as honeymoon ends

Holidaymakers may be basking under the Italian sun but the country’s recently elected prime minister is feeling an unwelcome chill.

News that Italy has slipped back into recession signalled the end of Matteo Renzi's political honeymoon. More importantly, it will raise questions about whether his government is serious about implementing what are aggressive but widely considered essential reforms of the euro zone's third largest economy.

Figures out yesterday from Italy’s national statistics office said the economy shrank 0.2 per cent in the second quarter. The consensus forecast had been for growth of 0.1 per cent. It is the second successive quarter of negative growth as GDP shrank 0.1 per cent in the first three months of the year.

The country emerged from the grip of recession in the last quarter of 2013 after two years of contraction.

Economists expect the new figures to prompt the government to revise downwards its 2014 growth forecast of 0.8 per cent – a figure that was already seen as wildly optimistic even in Italy. The Bank of Italy and employer group Confindustria are already on record as expecting growth of no more than 0.2 per cent this year.

Seen as fresh when he swept to power six months ago – with promises of spending cuts, tax reductions, privatisations and measures aimed at reviving growth and creating jobs – there is increasing scepticism as Renzi is seen as getting sidetracked by a battle over revamping the Senate.

Pier Carlo Padoan, Italy's finance minister, yesterday admitted the country was struggling to emerge from recession and a decade of zero nominal growth but dismissed the idea that it required outside intervention from the "troika" of Brussels, the International Monetary Fund and the European Central Bank to bring about economic reform.

“The country must reform itself by itself, and we are doing it, but we must be in even more of a hurry to do so,” he said. Indeed.