Italian Economy Contracts for Fifth Quarter on Recession

By Flavia Krause-Jackson

Aug. 7 (Bloomberg) -- Italy’s economy contracted for a fifth-straight quarter as consumer spending and exports slumped, extending the country’s worst recession in six decades.

Gross domestic product shrank 0.5 percent from the first quarter, when it contracted a revised 2.7 percent, statistics office Istat said in Rome today in a preliminary report. Economists had forecast a 0.7 percent contraction, the median of 23 estimates in a Bloomberg News survey showed. The economy shrank 6 percent from a year earlier.

The euro-region’s deepest recession since World War II has hurt demand for Italian goods and helped boost the jobless rate to a four-year high, leaving consumers reluctant to spend. The government of Prime Minister Silvio Berlusconi has introduced a range of measures, from corporate tax breaks to incentives to trade in old cars, in a bid to drag Italy out of its fourth recession since 2001.

“The recovery will be slow and the road to full-fledged growth will be a long and bumpy one,” said Paolo Pizzoli, an economist at ING Bank NV in Milan.

The International Monetary Fund has forecast that Italian GDP will shrink 5.1 percent this year and barely grow in 2010.

A separate report yesterday showed that industrial production in June declined 1.2 percent from the previous month. Economists had forecast a gain in output. Indesit SpA, Italy’s biggest maker of household appliances, posted a loss in the second quarter, and said it doesn’t see sales picking up soon.

Recession Easing

Still, the rate of the economic contraction is slowing, and a pickup in foreign demand may signal the start of a recovery. Factory orders in Germany, the region’s largest economy, posted their biggest increase in two years and business confidence rose for a fourth month in July. French business confidence gained for a third month in June.

“In the second quarter, net exports will make a positive contribution to the overall growth number, while decreases in consumer spending will slow,” said Luigi Speranza, an economist at BNP Paribas SA in London.

European car sales gained in June for the first time in 14 months as government-backed incentives boosted demand for producers such as Fiat SpA. The Italian carmaker recorded a 12 percent gain, selling 112,437 vehicles in the region.

A recovery will be slow in coming, European Central Bank President Jean-Claude Trichet said yesterday.

The economy will “remain weak” in 2009 and “after a phase of stabilization, a gradual recovery with positive quarterly growth rates is expected” next year, Trichet said at a press conference in Frankfurt.

The ECB kept its benchmark interest rate at a record low 1 percent yesterday.

Istat revised first-quarter GDP from a decline of 2.6 percent. The statistics office will give a breakdown of today’s data in its final report on second-quarter GDP on Sept. 10.

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-- With assistance from Steve Scherer in Rome and Elena Distaso in Milan. Editors: Andrew Davis, Jeffrey Donovan

To contact the reporter on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net