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Updated 13:10 22/10/19

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Italy back in recession as Spain and France show surprise growth


Liam Sheasby

Liam Sheasby, News Editor
31 Jan 2019, 12:32 p.m.


Italy’s economy has slipped back into recession following a poor end to 2018. ISTAT, the Italian National Institute of Statistics, reported that between October and December the economy contracted by 0.2%.

Following the announcement, Italy's main stock exchange, the FTSE MIB, began to lose share value. It is currently down 0.59% or 117.35 points. The price of gold is at €1,152.44 per ounce - up by €3.31 (0.29%).

The fourth quarter drop followed a 0.1% decline in Q3, so despite the minimal levels of contraction Italy is now, officially, in recession, but while some will argue that this is a mere technicality, other industry experts and analysts see this as a chronic problem with the Italian economy.

The news means that Italy is the first G7 member to be in recession since 2015, when Canada experienced a brief recession, and they are the first major economy in the European Union to enter recession since 2013.

Prime Minister Conte was the culprit behind the suggestion of a recession yesterday, telling attendees of an event in Milan that he expects “a further contraction of gross domestic product”. Conte also went on to say that "analysts tell us we'll likely still suffer a bit at the start of this year but all the elements are there to recover in the second half." Italy’s PM has since today blamed external factors – the US/China trade war primarily – as the reason Italy tipped back into recession.

Conte’s deputy, Luigi Di Maio (leader of the Five Star Movement), told Reuters this morning that the latest recession is proof that the EU’s budget rules are stifling Italy’s growth potential, in turn slowing down their debt repayment. Di Maio argued for relaxed requirements (2.4% of GDP was his government’s suggestion) in order to compensate for the damage done by the previous government.

Despite being the third-largest economy in the Eurozone, Italy’s debt is weighing heavily on its investment opportunities and growth. The lengthy debt repayment dispute with the European Central Bank did little to convince investors of the coalition government’s commitment to addressing Italy’s debt burden either.

A deal was agreed with the ECB in December to keep debt, as a percentage of Italy’s GDP, at 2.04% rather than the desired 2.4% stated in September when the budget was announced. The protracted and often heated debate was a fight between the wishes of the Italian people, voting for more public spending, and the ECB demanding better debt management.

The Eurozone grew by 1.2% in 2018, while the wider European Union grew by 1.8% - down from 2.5% in 2017. Q3 and Q4 were particularly weak for the Eurozone, with 0.2% growth reported by Eurostat – the European Commission’s data agency.

The slowing of growth has been attributed to a combination of Brexit uncertainty and the impact on trade deals and supply chains across Europe, as well as the ongoing US/China trade war, which has hit Germany especially with a marked slowdown in automotive sales. Germany’s Economy Minister, Peter Altmaier, reported a 1% growth forecast for 2019, with 1.5% growth in 2018 and 2.2% growth in both 2017 and 2016.

There was some good news though: Spain surprised analysts with 0.7% growth in the fourth quarter, meaning the country had grown by 2.4% compared to 2017. France also reported its figures yesterday, which showed 0.3% growth in the last three months of the year.

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You can read the full ISTAT document at: https://www.istat.it/it/files//2019/01/FLASH_2018q4f_EN.pdf

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