By Lorenzo Totaro
Nov. 14 (Bloomberg) — Italy, the third-biggest economy in the euro region, slipped into a recession in the third quarter as the fallout from the yearlong credit crisis choked growth.
The Italian economy fell into the fourth recession in less than a decade with gross domestic product shrinking 0.5 percent from the second quarter, when it contracted a revised 0.4 percent, the Rome-based statistics office said today. The two quarters of contraction represent the nation’s worst recession since 1992.
Italy follows Germany, Europe’s largest economy, in posting two consecutive quarters of contraction — the technical definition of a recession. While France unexpectedly reported 0.1 percent growth for the latest quarter, Europe’s economy sank into its first recession since 1993, which could lead to further cuts in interest rates and taxes amid the worst financial crisis since the Great Depression.
“Italy will be in recession up to the third quarter of next year,” said Dominic Bryant, economist for the euro zone for BNP Paribas in London. “Hopefully lower interest rates will help revive the economy, but it will take time to see the effects.”
The European Central Bank last week cut its benchmark rate by a half-point to 3.25 percent, the second such reduction within a month. Having raised rates as recently as July to combat inflation, policy makers are now signaling that slumping growth may lead to further cuts.
The Spanish economy contracted 0.2 percent in the third quarter, a separate report showed today. Germany’s economy shrank a bigger-than-expected 0.5 percent, pushing the nation into the worst recession in at least 12 years, data showed yesterday.
The French economy, the euro region’s second-largest, unexpectedly grew 0.1 percent in the third quarter, avoiding a recession, the government in Paris said today. Gross domestic product in the 15 euro nations shrank 0.2 percent from the previous three months, when it also contracted 0.2 percent, the European Union’s Luxembourg-based statistics office said today.
The financial crisis has prompted European governments to pump about $1.7 trillion into the banking system to try to restart lending and investment and stem a rout in the stock market. The economy has suffered other shocks as well, including the euro’s rise to a record $1.60 in mid-summer, the strongest inflation in almost 16 years and oil’s jump to an unprecedented $147 a barrel in July.
Italy’s business confidence dropped to the lowest in almost 15 years in October as the credit crisis deepened. Italy’s benchmark S&P/MIB index, which has plunged 46 percent this year, was up 2.6 percent at 20,945 at 12:55 p.m.
Taking Its Toll
The recession is already taking its toll on Italian companies ranging from automakers to microchip producers. STMicroelectronics NV, Europe’s largest chipmaker, forecast a drop in fourth-quarter revenue of as much as 8 percent.
Fiat SpA, Italy’s largest automaker, said on Oct. 23 earnings may fall as much as 85 percent next year in a “worst- case” scenario. The company, which has already scaled back car production in Italy, said yesterday that it planned temporary layoffs of 3,000 workers in Brazil to cut output by 20 percent.
“We don’t expect a quick or simple economic recovery anytime soon,” Aldo Soldi, president of Coop, Italy’s largest supermarket chain, said in a Nov. 12 interview. “We may have to wait until the second half of 2009 or even until 2010.”
Italy’s economy will stagnate this year and next, making it the worst-performer after Ireland among the nations sharing the euro, the European Commission forecast on Nov. 3.
From the year-earlier quarter, the economy contracted 0.9 percent in the latest three months, the sharpest decline in more than 15 years, the statistics office said in today’s report. The office will provide a breakdown of the GDP figures when it releases its final report on Dec. 12.