Wednesday, March 13, 2013

Italy's economy shrinks as EU leader warns of lost generation

Italy slid deeper into recession during the fourth quarter of last year, official figures showed on Monday, as the European Parliament's president warned that Europe risks losing an entire generation.

Italy has been mired in recession since the middle of 2011 and is not expected to show any growth until the second half of this year at the earliest. Photo: AP
 
 
 
Data from Italy's national statistics institute ISTAT showed that the country's economy shrank by 0.9pc in the fourth quarter of last year and gross domestic product was down a revised 2.8pc year-on-year.
The economy was hobbled by chronically weak domestic demand and a fall in inventories, while exports posted modest growth.
Italy has been mired in recession since the middle of 2011 and is not expected to show any growth until the second half of this year at the earliest.
The economy contracted by 2.4pc last year and on Friday Fitch cut Italy's sovereign credit rating, citing a deep recession, rising debt and political instability following last month's inconclusive election.
Fitch noted that Italy's ongoing recession "is one of the deepest in Europe," and warned that "the increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy."
In the wake of the downgrade, Italy's 10-year bond yields climbed on Monday morning, ticking up 5.4 basis points to 4.6pc.
"The market has so far reacted relatively calmly, but I expect Italy to come under some pressure at upcoming debt auctions following the downgrade," said Alessandro Giansanti, a fixed-income strategist at ING.
"The main focus will be the yield spread between Spain and Italy. Italy risks being overtaken by Spain given the current political uncertainty."
Greece also sank further into recession during the fourth quarter of 2012, with figures on Monday showing the economy contracted by 5.7pc year-on-year.
Their economic malaise throws into relief the eurozone's struggles to overcome its debt crisis and kick-start economic growth.
Martin Schulz, president of the European Parliament, warned in an interview on Monday that Europe has spent hundreds of billions of euros rescuing its banks but may have lost an entire generation of young people in the process.
"We saved the banks but are running the risk of losing a generation," said Mr Schulz, a German socialist who has led the European Parliament, the EU's only directly elected institution, since January last year.
"One of the biggest threats to the European Union is that people entirely lose their confidence in the capacity of the EU to solve their problems. And if the younger generation is losing trust, then in my eyes the European Union is in real danger," he told Reuters.
Since the region's debt crisis erupted in Greece in late 2009, the European Union has created complex rescue mechanisms to prop up distressed countries and their shaky banking sectors, setting aside a total of €700bn.
But little has been done to tackle the devastating social impact of the crisis, with more than 26m people unemployed across the EU, including one in every two young people in Greece, Spain and parts of Italy and Portugal.
Last month, the European Commission warned that unemployment in Europe is "unacceptably high" and threatens "grave social consequences".
Separately on Monday, figures showed that France's industrial production slumped 1.2pc in January, underlining the slowdown in the economy at the start of the year.

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