Italian economy grinds to a halt amid banking woes

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Finance minister Pier Carlo Padoan had recently predicted 0.1-0.2 percent quarter-on-quarter growth. Photo: Eric Piermont/AFP
10:38 CEST+02:00
Italy's economy stalled in the second quarter of the year, official data indicated on Friday, exacerbating fears a sluggish recovery from recession is running out of steam.

Output in the three month to the end of June was the same as in the first quarter of 2016, leaving annual growth at 0.7 percent.

Finance minister Pier Carlo Padoan had recently predicted 0.1-0.2 percent quarter-on-quarter growth.

Italy's economy, which has barely expanded since the country became a founder member of the eurozone in 1999, emerged from three years of recession at the start of last year.

But the recovery has struggled to gain any momentum and the International Monetary Fund (IMF) last month cut its forecast for Italy's 2016 growth from 1.1 percent to 0.9 percent, largely to take account of the negative impact of Britain's vote to leave the European Union.

Confidence has also been hit by fears of a crisis in the country's bad debt-laden banking sector.

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The government is forecasting growth of 1.2 percent this year and 1.4 percent in 2017, having cut its predictions in April from 1.6 percent for both years.

The downward trend in growth forecasts will reduce Prime Minister Matteo Renzi's room for manoeuvre as he seeks to pursue an expansionary budget policy without allowing the country's huge debt, equivalent to more than 130 percent of GDP, to increase.

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