Italy slumps into recession as eurozone prospects dim

A slump in domestic demand caused the economy to shrink. Photo / Getty Images

Italy has fallen into its third recession in a decade as a slump in domestic demand caused the economy to shrink.

GDP fell by 0.2 per cent in the final three months of last year, following a 0.1 per cent decline in the third quarter. The usual definition of a recession is two consecutive quarters of contraction.

The eurozone as a whole expanded by 0.2 per cent, the same pace as in the previous quarter.

Compared with the final quarter of 2017, eurozone GDP rose by 1.2 per cent, its weakest 12-month performance since the 2012-13 recession that accompanied the sovereign debt crisis.

"This was a disappointing end to the year," said Andrew Kenningham at Capital Economics, who noted that surveys of businesses taken in December and January had recorded falling growth, meaning "the prospects for the first quarter of this year currently look no better".

"We expect the European Central Bank to revise down its GDP forecasts, of 1.7 per cent growth this year and next, in March and to make clear that it does not expect to raise interest rates until next year at the earliest."

German officials have already cut their own forecasts of national growth for this year from 1.8 per cent to just 1 per cent.

However, the picture is not uniformly bad. Spain is experiencing a resurgence as its growth increased slightly from 0.6 per cent in the third quarter to 0.7 per cent in the fourth.

France grew by 0.3 per cent, beating expectations of a further slowdown.

Unemployment in the eurozone fell in the final quarter, dipping to a 10-year low of 7.9 per cent in November and December. In Spain the rate dropped sharply from 16.5 per cent at the end of 2017 to 14.3 per cent.

Even in Italy, unemployment narrowed, with the jobless level now at 10.3 per cent, down from 10.9 per cent a year ago.

However, economists fear that these improvements will slow as the downturn deepens.