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Italy Teeters on Brink of Recession

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Italy got bad news on Wednesday as its economy contracted in Q3, with GDP falling 0.2%, as opposed to a 0.3% expansion in Q2. The news could signal a beginning of Italy’s fifth recession since 2001, just as new austerity measures are being put in place that will further threaten economic growth.

According to a Bloomberg report, the national statistics institute Istat said in Rome that this is the first contraction in the country’s economy since the last quarter of 2009. Consumer spending lost 0.2% from Q2, and investment fell back by a larger margin of 0.6%. Exports increased by 1.6% during the quarter, as imports lost ground, dropping 1.1%.

Chiara Corsa, a Milan-based economist at UniCredit, commented in the report, “Italy technically entered a recession as we expect an even more marked contraction in the fourth quarter of minus 0.6%. Looking at today’s data, they show that the main drag came from domestic demand, both consumptions and investments.”

That does indeed seem likely as a new 30 billion euro ($39 billion) emergency budget plan, to be voted on as soon as Thursday, is Italy’s third austerity package for the year; tax increases and spending cuts already in place probably contributed substantially to the Q3 contraction.

Last week the country’s employers lobby, Confindustria, forecast that GDP would shrink by 1.6% in 2012. It also said that Italy’s economy would contract every quarter till the second half of 2012. Even if it is only correct about a contraction in Q4 of 2011, that would be the second quarterly contraction in a row, which fits the technical definition of a recession.

Corrado Passera, Italy’s development minister, said when Confindustria presented its report, “We are already in a recession, look at the numbers, we are in recession.” He added that the economy is “worse” than Prime Minister Mario Monti’s new government expected when it took power in November.

Other statistics bear out Passera’s assertion. In a Dec. 20 report, industrial orders were shown to have fallen 1.6% in October from September,  while at the same time industrial production lost 0.9%. Unemployment hit 8.5% in October, a 17-month high, and youth unemployment was more than three times that, at more than 29%.