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Italian economy slips back into recession

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Italian economy slips back into recession
Job ads in Naples. Italy now has 10.3 percent unemployment. Photo: Controluce/AFP
12:34 CET+01:00
Italy's economy fell into recession at the end of 2018, capping a year of political turmoil and budget battles with Brussels.

The Italian economy contracted in the fourth quarter of last year, official data showed today, plunging it into a technical recession.

The 0.2 percent contraction - following a 0.1 percent fall in the third quarter - will put pressure on the populist government, which took power in June on the back of big-spending electoral promises.

Italy/s last recession was in 2014.

Prime Minister Giuseppe Conte had anticipated the bad news on Wednesday during a business conference in Milan.

"Analysts tell us we'll likely still suffer a bit at the start of this year," he said, pointing the finger at a slowdown in China and Germany which are hurting Italian exports.

"But all the elements are there to recover in the second half," Conte added

The coalition government of the populist Five Star Movement (M5S) and the far-right League party was forced to water down its ambitious and costly budget in December to avoid being punished by the European Commission and the financial markets.

READ ALSO: Italy has reached a deal with the EU over its 2019 budget

A slowdown will make it even harder to follow through on expensive vote-winning measures both parties promised their bases, most notably a reform to the pension system and income support for the poor.

Italian government ministers pose with copies of the new economic law earlier this month. Photo: Alberto Pizzoli/AFP

The technical definition of a recession is economic contraction for two quarters in a row.

"The risk of recession in the eurozone is something that has been widely discussed for weeks now but the news that Italy has fallen into technical recession still comes as a blow to the region," Oanda analyst Craig Erlam told AFP.

Italy's recession places intense pressure on the nation's populist government, headed by Prime Minister Giuseppe Conte who took power in June on the back of big-spending electoral promises.

"This (recession) should not really be a surprise given the direction of travel of recent data," CMC Markets analyst Michael Hewson told AFP.

"The problem EU policymakers have is that it looks as if it could well me much more serious than originally thought," he said.

"If that is the case it makes it much more likely that the Italian government will feel compelled to breach its deficit targets even further."

"The deterioration in the data thus makes a renewed conflict with the EU Commission much more likely," Hewson added.

Thursday's data "reflect a marked worsening of the industrial sector's performance, and of a negative contribution of agriculture," national statistics institute Istat said.

The institute had also earlier released December's unemployment rate, which fell to 10.3 percent from 10.5 percent, a positive sign.

The jobless numbers rose 0.1 percent for young people aged 15 to 24, however, bringing the rate to 31.9 percent.

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