Italian economy falls back in blow for Renzi

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The setback in the economy is due to weak growth in Italian industrials Italian Industrials photo: Shutterstock
08:32 CEST+02:00
Italy's economy unexpectedly moved back into negative territory in the first quarter due to poor industrial results after barely exiting its worst post-war recession, in a blow for Prime Minister Matteo Renzi.

The official Istat data agency said on Thursday in an initial estimate that gross domestic product (GDP) had shrunk by 0.1 percent from the previous quarter and was down 0.5 percent from the same period last year.

"This is a very weak result... Growth has stopped -- even worse it's going backwards," said Chiara Corsa, a macroeconomic expert at Italy's UniCredit bank.

"It's due to weakness in industry. We had expected a positive contribution from exports and domestic demand," she said, adding: "It's very disappointing."

Stocks in Milan closed the day down 3.61 percent at 20,419.62 points after starting the trading day in positive territory as analysts had predicted a meagre recovery would continue in the first three months.

It was the worst-performing of Europe's main stock markets. The differential or spread between the interest on Italian 10-year-government bonds and benchmark German ones also widened to 184 basis points from 154 on Wednesday, indicating growing investor unease.

Nicola Borri, a professor of macroeconomics at Rome's LUISS university, said: "This is clearly bad news.

"In the last quarter we saw a slight return to growth and thought it was the beginning of a recovery but the hope for a return to growth is on freeze," he said.

"It is below expectations. The forecasts had been for growth of 0.1 or 0.2 percent," he said.

"This is not good news for Matteo Renzi ahead of the European Parliament elections. This means that the situation in the country is worse than we thought.

"More incisive measures are required," he said.

Basically stagnation

Graziano Delrio, Renzi's right-hand man in the cabinet, admitted the government was "concerned" but said he was not "surprised".

But Franco Bruni, a political economy professor at Bocconi University in Milan, said Renzi was "not responsible for the situation since he has only been in power for a few weeks".

"This GDP result could help propel reforms," he said.

Istat experts played down the result saying it showed "basically stagnation" and reflected a "negative tendency for industry and a flat services sector".

Italy's longest recession since World War II formally ended in the fourth quarter of 2013 with growth of 0.1 percent after nine consecutive quarters of shrinkage.

The result showed that the announcement of a recovery by Renzi's government was "premature and ambitious", said Daniele Capezzone, a senator from former prime minister Silvio Berlusconi's Forza Italia party.

The government has forecast economic growth of 0.8 percent this year but the International Monetary Fund and the European Commission both see the eurozone's third-biggest economy growing by just 0.6 percent.

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Italy's economy contracted by 1.9 percent in 2013.

Industrial orders fell 3.1 percent in February from January due to a drop in foreign orders, according to the latest figures from Istat released last month.

The biggest drops were in the electronics sector, household goods and chemical products, while car production and textiles saw sharp increases.

Orders were 2.8 percent higher on a 12-month comparison.

An Italian companies database, Cerved, also on Thursday said business bankruptcies were 4.6 percent higher at 3,811 compared to the first three months of 2013.

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