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Italy ends two-year run of negative growth

Economy stops shrinking but that does not yet mean recovery

10 December, 16:08
Italy ends two-year run of negative growth (By Sandra Cordon) (ANSA) - Rome, December 10 - Economic data on Tuesday that showed flat gross domestic product (GDP) following two years of losses led Economy Minister Fabrizio Saccomanni to herald the end of Italy's deep and painful recession, but business leaders were less optimistic.

Italy ended its run of eight consecutive quarters of GDP losses in the third quarter of this year when GDP was unchanged from the previous quarter, the national statistical agency Istat reported on Tuesday.

Compared with the third quarter of last year, GDP came in at -1.8%, said the agency.

Saccomanni was quick to declare an end to the punishing economic losses that began in Q3 in 2011 and plunged Italy into its deepest recession since the Second World War.

"Istat has certified the end of the recession," Saccomanni said via his Twitter account, @FabSaccomanni.

"Imports, exports and industrial production are recovering," added Saccomanni, whose government had forecast GDP for 2013 would come in at a -1.8%.

"There is still a long way to go, but it's the right direction".

In fact, Istat noted that it was not actually the agency's job to declare an end to the recession.

"In the fourth quarter, GDP will be positive," predicted Saccomanni. His government has forecast economic growth of 1% in 2014.

"With companies going again, it will finally be possible to have improvements on the jobs front". Unemployment in Italy has reached a record high of 12.5% among the working population, with more than four in 10 people who are under 25 out of work. Tuesday's data were not all positive.

Social security agency INPS reported that applications for unemployment benefits jumped by 31% in the first 10 months of 2013 compared with the same period last year.

The agency said it received 1.7 million claims for unemployment benefits in the January-October period, compared to 1.3 million claims in the first 10 months of 2012.

With consumer and business confidence closely linked to jobs and employment prospects, business leaders said the latest data isn't enough yet to make them feel optimistic.

Although the latest GDP statistics show Italy's economy has stopped falling, that does not mean the country is out of danger, said the president of big-business lobby group Confindustria.

"The descent seems to have diminished, however, we cannot say we are out of the crisis," said Giorgio Squinzi. Italian retailers' group Confescercenti noted that with the "economic situation going from recession to zero growth" a full recovery "is still far off".

That, in turn, means continued weak consumer confidence and consumption, warned the group which last week said that almost nine out of 10 Italians have been forced to cut back on spending for the holidays because of the economic crisis.

It estimated that 87% of Italian shoppers - about 41.5 million people - have trimmed their budgets, representing an increase of about 500,000 people compared with last year.

Those findings support a separate survey by business group Confcommercio which said that Christmas will be a bleak affair for many Italians who have seen their incomes remain stuck at 1986 levels. Meanwhile, other economic data from the national statistical agency on Tuesday sent mixed signals.

Istat reported that the industrial sector posted a 0.5% gain in October compared with the previous month.

However, output was 0.5% lower than in October 2012, the 26th consecutive year-on-year fall. Still, that represented the smallest year-on-year drop since August 2011.

Financial markets seems encouraged by the relatively positive economic news as the spread between Italy's 10-year BTP bond and the German benchmark briefly dropped to its lowest level since July 2011 late Tuesday morning.

The spread, a key measure of investor confidence when compared with the more highly rated German bond, dropped to 226 basis points after closing trading at 228 basis points on Monday.

It subsequently climbed back up Tuesday to 228 points with a yield of 4.11% on Italy's 10-year bond.

Italy risked a complete financial meltdown in late 2011, when the rate on the 10-year-bond peaked at over 7%, with the spread between it and the German benchmark above 500 points.

That crisis led to the collapse in November 2011 of ex-premier Silvio Berlusconi's third government.

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