Italy’s Second-Quarter GDP Declines, Showing Recession

By Chiara Vasarri

Italian gross domestic product unexpectedly dropped in the second quarter, showing the economy is in recession.
Gross domestic product fell 0.2 percent from the previous three months, when it declined 0.1 percent, the national statistics institute Istat said in a preliminary report in Rome today. That compares with the median forecast of a 0.1 percent expansion in a Bloomberg survey of 22 economists. From a year earlier, output shrank 0.3 percent.
With Italian youth unemployment above 40 percent and sovereign debt of about 2 trillion euros ($2.7 trillion), Prime Minister Matteo Renzi is under pressure to quickly turn around the euro region’s third-biggest economy. Lower-than-expected growth may undermine
his plans to bring the country’s deficit-to-GDP ratio to 2.6 percent this year and start reducing Europe’s second-biggest debt.
Renzi has acknowledged that annual GDP growth will probably fall well below the Treasury’s 0.8 percent forecast, while the government’s debt reduction plans also seem to be yielding disappointing results, Wolfango Piccoli, managing director at Teneo Intelligence in London, wrote in a research note this week.

Deficit Reduction

“Under present conditions, and assuming a more realistic growth rate of 0.3 percent, the cabinet will need to find at least 15 billion euros to 16 billion euros to keep its 2014 deficit reduction plans on course,” he said.
Last month the Bank of Italy lowered its growth forecast for this year to 0.2 percent, less than a third of its previous prediction. Even so, industrial production increased 0.9 percent in June, Istat said earlier today. That beats the median economist forecast of 0.8 percent.
While the third quarter should see a modest pickup in personal consumption and gross fixed investment, the Italian economy and banking sector are among the most exposed to Russia, Riccardo Barbieri, the London-based chief European economist at Mizuho International Plc, said in a July 31 research note.
“Even the 0.3 percent increase we have penciled in for the third quarter would be a good result given the current circumstances,” he said.