Italy Recession Confirmed

Italian GDP shrank by -0.7% in the fourth quarter of 2011, following a dip of -0.2% in the third quarter, marking the country’s official entry into a recession. For the full year, Italian GDP grew by 0.5%, but the economy slowed in the second half of the year as austerity measures have cut domestic spending and a slowdown in the eurozone economy in general has led to a decline in exports.

The forecast for 2012 calls for more of the same. The austerity measures will continue to cut into the country’s GDP and a slowing global economy will continue to cut demand for exports. GDP contraction estimates range from around -0.4% by the Italian government to -2.2% by the International Monetary Fund.

Italy’s is the eurozone’s third-largest economy, after Germany and France. The country is currently trying to negotiate labor reforms that are unpopular with workers and are leading to demonstrations against the government of Mario Monti. The government has already raised taxes, cut public spending, and levied taxes on some Catholic church property as it attempts to reduce its fiscal deficit.

In one bit of good news for the country, yields on its 10-year bonds are once again below 5%. The country’s total debt amounts to about 120% of its GDP.