26 May 2017

Italy Slips Back Into Recession Again

Italy Slips Back Into Recession Again
Image Courtesy : hoovers

The Italian economy is reported to have slipped back into recession in the first part of 2014. This characterisation is based on a criterion for a recession standard in Europe, two successive quarters of negative growth. However, there are other criteria to define a recession. US standards would treat Italy’s economic situation as one, six-year-long recession. Whereas one cannot say whether one criterion is superior to the other, announcing a recession has further implications.

Italy’s economy unexpectedly contracted last quarter, signaling the country’s failure to sustain a pullout from its longest recession on record. Gross domestic product in the three months through March decreased 0.1% from the fourth quarter, when it rose 0.1%, the national statistics institute Istat said in a preliminary report in Rome today. The decrease contrasts with the median forecast of a 0.2% expansion in a Bloomberg survey of 21 economists. From a year earlier, output shrank 0.5%.

An unexpected decline in Italy’s industrial production in March prompted concerns about the recovery’s sustainability in the months ahead. In Paris, national statistics office INSEE said French GDP was unchanged in the three months through March, while the German statistics office said Europe’s largest economy expanded 0.8% in the same period. Milan’s FTSE MIB Index fell 1.04% to 20,964.49. The yield on Italian 10-year bonds was little changed at 2.9%.

The economic data and news that Russia was massing troops and military equipment on the Ukrainian border caused stock prices to fall across Europe on Wednesday. Italy’s main stock index fell more than 2 percent and the euro also slipped to a nine-month low against the dollar, down to $1.334. Analysts surmised that the strained relations with Russia as well as turmoil in the Middle East had undercut demand for Italian exports, in particular fashion and other luxury goods.

Mario Draghi says Italy can only blame itself for its third recession since 2008. The European Central Bank president singled out his country’s lack of structural reform after data showed the euro-area’s third-biggest economy unexpectedly contracted last quarter. The comments in Draghi’s monthly press conference came a day before Italian Prime Minister Matteo Renzi won a key vote in his drive to remake the country’s political system.

Mr. Draghi said that he keeps on saying the same thing, really, of reforms in the labor market, in the product markets, in the competition, in the judiciary, and so on and so forth, and the former Bank of Italy governor was in Frankfurt yesterday after keeping ECB interest rates unchanged at record lows. These would be the reforms which actually have and have shown to have a short-term benefit.

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