Italy dips into recession as GDP shrinks

Italy dipped into recession in the second quarter of the year for the first time since 1992, as dismal consumer demand and shrinking exports took a bite out of the economy.

Economists said Italy's economy should strengthen in the second half of the year but will likely fall short of the government's target of 0.8 per cent.

The euro zone's third-largest economy - and the first of the region's big three to report second-quarter gross domestic product (GDP) - shrank 0.1 per cent in the period, preliminary data from national statistics agency Istat showed yesterday. Italy's GDP also contracted 0.1 per cent in the first quarter.

"I expect a gradual recovery in the second half of the year, but without any big surges," Deutsche Bank's Ms Susana Garcia said. "It's a tired economy which takes time to react."

Istat said it was the first time Italy had posted two straight quarters of negative GDP growth since 1992.

"Manufacturing contracted in the second quarter compared with the first and services didn't do much," Ms Garcia said, adding that internal and external demand were both weak, taking their toll on the economy.

In annual terms, Italy's GDP grew 0.3 per cent in the second quarter following a 0.7 per cent increase in the first three months of the year.

Italy, which comprises some 18 per cent of the euro-zone economy, is the first of the region's big three economies to report second quarter GDP. Germany is expected to show quarter-on-quarter stagnation at best, with several think-tanks predicting a slight contraction for the second quarter in a row.

"With German GDP also expected to contract and France seen stagnating, euro-zone GDP is seen at 0 per cent quarter-on-quarter in the second quarter," said Ms Kleopatra Nikolaou, analyst at 4CAST in London.

Preliminary figures on French second-quarter GDP are due on August 20th. There is no consensus forecast yet.

In the first quarter, GDP grew 0.3 per cent after falling 0.1 per cent in the fourth quarter of 2002. - (Reuters)