Tourist souvenirs sports hats featuring Italia branding sit displayed for sale on a stall at Campo dei Fiori outdoor street market in Rome, Italy. (Photographer: Alessia Pierdomenico/Bloomberg)

Italy Output Shrank Less Than First Seen, Still in Recession

(Bloomberg) -- Italy’s economic contraction at the end of last year was less than first estimated, but the economy still slipped into a recession that casts doubts on the populist government’s growth target for this year.

The economy shrank 0.1 percent in the three months through December, less than the 0.2 percent drop in an initial reading. That was still the second consecutive quarterly decline, meaning Italy was the only nation in the euro region slipping into a technical recession in that period.

Italy Output Shrank Less Than First Seen, Still in Recession

There was a negative contribution from inventories, while public spending also declined, adding to the output fall at the end of last year.

Fabio Fois, a senior European economist at Barclays, wrote in a note that “excluding inventories, both final domestic demand and net exports contributed positively to growth.”

Consumption increased by 0.1 percent in the fourth quarter as exports rose by 1.3 percent.

Still, Fois wrote, “We remain cautious about Italy’s near-term growth outlook.”

What Our Economists Say...

“For a while all the news from Italy has been doom and gloom. That’s no longer the case. The underlying state of the economy doesn’t seem to have been as weak at the end of last year as it initially appeared and the survey data is pointing to some improvement as 1Q progresses.”

--David Powell, Bloomberg Economics. Read more: ITALY INSIGHT: Finally, Economy Seems to Be Emerging From Slump

Gross domestic product in the final quarter of 2018 was unchanged from the same period in 2017.

Employers lobby Confindustria warned on Monday that the recession is set to continue in the current quarter amid declining industrial output.

In Brussels, the European Commission said last week that Italy’s massive public debt and long-lasting productivity weakness pose risks for other European countries.

The euro area’s third-largest economy saw a continued slump in manufacturing last month, while confidence figures slid.

The economy faces the risk of near-stagnation this year along with persistent double-digit unemployment and no progress on reducing its debt load.

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