Italy falls back into recession

Shoppers outside shop with 50% Sale sign Italy's economy shrinks - the latest figures were weaker than expected

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Italy's economy has fallen back into recession, latest official figures show, after contracting for two quarters in a row.

GDP, the value of all the country's goods and services, shrank 0.2% in the second quarter of the year.

The surprisingly weak number follows a 0.1% contraction in the first quarter.

Economists consider two quarters of shrinking GDP means a country is in recession.

At the end of last year the country appeared to be emerging from recession, growing fractionally in the last three months.

But since then the numbers have been getting worse.

Speaking before the release of the latest figures, Hetal Mehta, European economist with Legal & General Investment Management, told the BBC: "Italy has a huge pile of government debt and they need growth to bring that debt stock down, so having such weak growth figures is a major setback."

But the Bank of Italy said last month that GDP had contracted by 9% since the global financial crisis began in 2007.

Separate figures showed industrial output increased by 0.9% from May to June, the biggest increase in five months.

Reforms

This latest unexpected contraction in GDP is a blow to Prime Minister Matteo Renzi, who came to power in February promising to reform and revive the economy.

But the reforms have so far been limited to a tax break for low income workers.

Ms Mehta said: "If you compare it to a country like Spain, which underwent a huge amount of austerity but at the same time carried out labour market reforms, Italy ... hasn't done as much and you see the difference in growth rates that are starting to come through."

The Spanish government last month raised its estimate for 2014 growth to 1.5%.

Italy's projections for 2014 put economic growth at 0.8% this year, with a deficit of 2.6% of GDP.

And without a recovery, there is speculation the government may need another budget to keep the deficit below the European Union's ceiling of 3% of GDP.

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