The Italian economy remained stuck in recession in the second quarter as austerity measures weighed heavily on economic activity.
The fourth successive contraction has raised concerns about the ability of the government to bring order to its public finances.
Gross domestic product dropped 0.7 percent sequentially, slower than the 0.8 percent decline in the previous quarter, preliminary data from the statistical office Istat showed Tuesday. Economists had forecast a similar 0.8 percent decline for the second quarter. No breakdown of the GDP is available.
On a yearly basis, the economy shrank 2.5 percent, the largest fall since the fourth quarter of 2009, when it dropped 3.5 percent. The annual fall matched economists' expectations and followed a 1.4 percent contraction in the first quarter.
Data released earlier in the day showed a bigger-than-expected decline in industrial production in June. Production slid 1.4 percent from a month ago, when it rose by a revised 1 percent. Output was forecast to fall 1 percent.
The sharp fall in GDP in the second quarter highlights the huge economic and fiscal problems that Italy faces, Ben May at Capital Economics said. The economist sees no signs of improvement in the situation going forward. The country's jobless rate rose to a record high in June.
Employers lobby Confindustria has forecast the economy to shrink 2.4 percent this whole year and 0.3 percent next year. However, the International Monetary Fund sees only 1.9 percent contraction for 2012.
The Italian government is implementing a EUR 20 billion austerity measures in an attempt to bring its budget deficit to EU limit. The country's public debt currently equals 123 percent of GDP.
Italy's surging borrowing costs sparked speculation that the country is on the verge to seek European rescue fund. But, Prime Minister Mario Monti played down such rumors.
That said, Monti warned Europe that the region is facing the threat of a psychological disintegration due to the impact of the debt crisis, in an interview over the weekend.
Although the pressure from the markets has recently eased, May at Capital Economics still thinks that it is only a matter of time before Italy is forced to seek a sovereign bail-out.
by RTT Staff Writer
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