Confirmation Friday that the Italian economy is in recession added to the lengthening list of economic woes that included new evidence of rising unemployment and a significant threat of deflation.
National statistical agency Istat reported that the Italian economy did fall by 0.2% in the second quarter, confirming earlier estimates that the economy is in recession.
It also announced that the overall unemployment rate rose by 0.3% to reach 12.6% last month while youth joblessness unexpectedly slipped to 42.9%.
At the same time, the number of people employed in Italy fell by 35,000 or the equivalent of more than 1,000 jobs per day in July, said Istat. Some 705,000 under-25s are looking for a job in Italy, the statistics agency said.
The harsh economic news came just before Premier Matteo Renzi met his cabinet to discuss several major policy reforms, including measures the government hopes will help to strengthen Italy's economic underpinnings.
Renzi's government, which must soon put together its 2015 budget, has been faced with a steady stream of bad economic indicators that included a report Friday that for the first time in more than 50 years, consumer prices fell below zero this month.
Istat said that its consumer price index fell by 0.1% in August, the first deflation report since September 1959 as fuel prices fell by 1.2% to lead a downward trend in prices for food, household products and personal care goods.
By European Union inflation measures, prices fell by 0.2% in August.
Very low inflation is seen as a sign of significant economic weakness that can translate into businesses losing money, cutting costs, and eventually, reducing jobs.
The European Central Bank (ECB) aims to hold inflation just under 2%, judging that to be the optimal level for economic growth that is neither too fast nor too slow. Istat also warned that it sees no improvement for the economy in the months ahead, with gross domestic product (GDP) remaining at about zero as Italy seems unable to pull itself free from its third recession since 2008. The latest report comes the same week as Istat said that retail sales in Italy fell, along with consumer and business confidence. The gloom only adds to the fears of many Italians about the economy in general and their own particular situations.
Italy is not alone in its woes.
Weakness in much of Europe, including its largest economy Germany, has raised fears of stagnation and possibly deflation in the region.
Some are even warning that Europe might be on the brink of the sort of extended deflation that plagued Japan's economy for 10 long years.
The ECB is scheduled to meet on Thursday when President Mario Draghi's words will be carefully scrutinized for further hints on the possibility of a major asset-buying program, or quantitative easing, to stimulate demand.
During an international event in Jackson Hole, Wyoming one week ago, Draghi made headlines by urging eurozone countries to keep reducing their deficits and keep up structural reforms.
He also said central bankers and policy makers had a role in stimulating economic growth.
"It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this, while taking into account our specific initial conditions and legal constraints," Draghi said in his prepared remarks.
His comments musings were praised on Friday by Italy's Economy Minister Pier Carlo Padoan and President Giorgio Napolitano who "were carefully considering the important information" contained in Draghi's speech, according to a statement from the president's office.
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