News Analysis: Italy in recession for 3rd time in 10 years, economy sputters into 2019

Source: Xinhua| 2019-02-01 20:28:22|Editor: xuxin
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ROME, Feb. 1 (Xinhua) -- Italy started 2018 with jitters about an upcoming national election, and according to data released Thursday by Italy's National Statistics Institute (ISTAT), the country ended the year in a technical economic recession.

According to the ISTAT, Italy's economy shrank by 0.2 percent in the fourth quarter of 2018. That comes after a 0.1-percent contraction in the third quarter. In technical terms, a recession is defined by at least two back-to-back quarters with negative economic growth.

This represents the third time in 10 years that the Italian economy fell into recession, after one between 2008 and 2009 and the other between 2013 and 2015.

The news was widely expected after ISTAT's earlier released data showing industrial production and material exports -- both key aspects of the economy -- slowed in the second half of last year. But the formal announcement still sparked concern with the Italian Stock Exchange in Milan ending the day in negative territory, and the yield on Italian government bonds climbing higher.

"This confirms what most observers were expecting, but this announcement means there is no doubt," Giuseppe Ciccarone, a professor of political economy at Rome's La Sapienza University, told Xinhua.

Analysts said that if the economic performance in the eurozone's third largest economy continues to sputter, it will begin to have a significant impact on other European economies and perhaps even beyond Europe.

Already, slow growth in Italy is considered one of the factors acting as a drag on European growth last year, along with the U.S.-China trade friction and Britain's contentious withdrawal from the European Union. As a whole, European Union economies expanded by 1.8 percent in 2018, the weakest growth level since 2014.

"If Italy's economic struggles stop here, the medium-term impacts will be limited," Francesco Daveri, an economist and the director of the business administration school at Bocconi University in Milan, said in an interview. "Right now, this is a problem for Italians, not for Europe as a whole. But if the trend continues or gains momentum in 2019, then that situation will change."

According to Andrea Fumagalli, a political scientist and economist at the University of Pavia, the biggest problem stemming from the weak economic data of 2018 is what it implies about this year.

The Italian government and the European Commission held eight weeks of difficult negotiations last year over the deficit level in Italy's 2019 fiscal budget. They finally agreed to keep debt within 2.04 percent of the country's gross domestic product, a figure based on an economy expected to grow at least 1.0 percent this year.

Since then, most investment banks and multilateral organizations have lowered their growth estimates for the Italian economy to 0.6 percent or lower, putting this year's deficit target in serious jeopardy.

Now, with negative growth over the second half of 2018 as a whole, the deficit target could be slipping even further out of reach.

"The problem is a serious one, especially given the budget deficit issue," Fumagalli told Xinhua. "If the government misses the deficit target this year, that will make it harder when negotiations for the 2020 budget begin."