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Pedestrians walk across an intersection in Rome, in this file photo. (Alessia Pierdomenico/Bloomberg)
Pedestrians walk across an intersection in Rome, in this file photo. (Alessia Pierdomenico/Bloomberg)

Italy’s triple-dip recession confirmed, deflation looms Add to ...

Italy’s economy contracted in the second quarter as a drop in investments dragged the country back into recession, with falling consumer prices suggesting it also risked being sucked into a deflationary spiral.

The figures underscore the difficulties facing Prime Minister Matteo Renzi, who is due to unveil a package of measures later on Friday aimed at reviving the euro zone’s third-largest economy after more than a decade of stagnation.

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Gross domestic product fell 0.2 per cent quarter-on-quarter, national statistics bureau ISTAT said, confirming a previous estimate. It dropped 0.2 per cent year-on-year, rounded up from a preliminary 0.3 per cent.

Italy emerged from a two-year recession in the fourth quarter of last year with 0.1 per cent growth, only to contract again in 2014 when the recovery had been expected to take hold, increasing pressure on Renzi to take decisive action.

“We’re still losing 1,000 jobs a day,” Luigi Angeletti, head of the UIL union said after a separate piece of data showed the unemployment rate for July climbed to 12.6 per cent, with 69,000 added to the jobless rolls from the previous month.

“The real economy needs a government which does something, instead of just pretending to do something,” he said.

Consumer prices fell in August from a year earlier, preliminary data showed, confirming fears that Italy risks sinking into sustained period of outright deflation that could further depress demand.

The minus 0.2 per cent reading in the EU-adjusted inflation figure was the lowest since the series began in 2002, and the 0.1 per cent drop in national NIC prices the first instance of annual deflation in that measure since 1959, an ISTAT official said.

Italy has grown more slowly than any other country in the euro zone over the past decade and most economists expect it to post little or no growth this year. The government has admitted it must cut an annual forecast for 0.8 per cent growth.

ISTAT said “acquired growth” at the end of the second quarter stood at –0.2 per cent. This means that if quarterly growth is zero until the end of the year, overall 2014 GDP will contract by 0.2 per cent from the previous year.

One of the priorities in the government’s reform package is to tackle unemployment, which rose to 12.6 per cent in July, data showed on Thursday, after unexpectedly dropping in June.

Unemployment among the young, which Renzi has identified as a priority for his government, fell less than a percentage point to 42.9 per cent in July after hitting a record high in June.

Domestic demand dragged on output in the quarter, as a 0.2 per cent uptick in consumer spending was unable to counteract a 2.1 per cent fall in investments. Exports increased 1.9 per cent, but were outstripped by a 2 per cent rise in imports.

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