Published: Sat, February 02, 2019
Markets | By Otis Pena

Italy falls back into recession, outlook for Europe darkens

Italy falls back into recession, outlook for Europe darkens

Gross domestic product fell a quarterly 0.2 percent between October and December, following a 0.1 percent decline in the third quarter, and was up 0.1 percent on an annual basis, national statistics bureau ISTAT reported on Thursday. Italy's GDP has been falling for two quarters in a row, with the key economic index dropped by 0.1 percent quarter-on-quarter from July to September, Istat specified. The Italian economy has been sluggish for quite some time while the Eurozone economy is also getting pretty weak, so it is going to be a very tough battle for Italians to pull the economy out of the hole. As a result, unemployment in the eurozone is about double the U.S.'s 4 percent at 7.9 percent. The German government says the country's economy will expand 1 percent in 2019, the slowest pace in six years.

Growth in Germany fell from 2.2 percent in 2017 to 1.5 percent previous year, while government economists on Wednesday predicted a gain of just 1.0 percent in 2019.

The coalition government of the populist Five Star Movement (M5S) and the far-right League party was forced to water down its ambitious and costly budget in December to avoid being punished by the European Commission and the financial markets.

Already, slow growth in Italy is considered one of the factors acting as a drag on European growth previous year, along with the U.S. It wants to provide more social security payments and to roll back a pension reform.

Most analysts had expected Thursday's data to confirm the recession, with Italian Prime Minister Giueseppe Conte saying "I am not anxious". "It's a transitory factor", Conte said at the inauguration of the academic year of the Università Cattolica.

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"But all the elements are there to recover in the second half", he said. He said that could mean the government will have to adjust its spending plans. The premier added that he did not fear the European Commission would ask Italy to pass an additional corrective budget in the light of the GDP data.

The eurozone has also been hobbled by an unexpected slowdown in Germany, Europe's biggest economy, which suffered an unexpected contraction in the third quarter largely due to changes in emissions standards that snarled auto sales.

Uncertainty over Britain's exit from the European Union also weighed on sentiment that is expected to drag down growth in the final quarter when the data becomes available next month.

Separate economic indicators point to further weakness at the start of 2019, and most economists expect a hard period ahead if the main causes of uncertainty aren't addressed soon. For a year the economy has slowed, however, again continuously.

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