Italy slides into recession, darkening outlook for Europe

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The EU's third-largest economy shrank more than expected in the last quarter of 2018 and recession has been signalled as that followed a contraction in the previous quarter.

Italy's economy contracted for the second consecutive quarter at the end of past year, data showed on Thursday, throwing the country into recession in a setback for the new anti-establishment government.

Following a 0.1 percent drop in GDP in the previous three-month period, that means Italy is in a technical recession, defined as two straight quarters of economic contraction.

Industrial production throughout the whole of the eurozone slumped into the end of 2018, signalling that the single currency area's economy is still growing, but doing so at a glacial pace. As a result, unemployment in the eurozone is about double the U.S.'s 4 percent at 7.9 percent. Overall growth for full-year 2018 was just 0.8 percent.

The coalition government of the anti-establishment Five Star Movement (M5S) and the far-right League party was forced to water down its ambitious and costly budget in December to avoid being punished by the European Commission and the financial markets.

The government, elected against the backdrop of economic disappointment after years - even decades - of stagnant growth, wants to ramp up spending to get the economy going.

Investors have been warily watching Italian economic performance following weeks of negotiations with the European Union over the government's budget that pushed up bond yields.

The statement comes after Italian Prime Minister Giuseppe Conte voiced on 30 January the belief that the country's GDP could resume its growth in the second quarter of 2019.

"This is a transitory factor", he told reporters in Rome.

"The risks for the Italian economy remain clearly on the downside and the recession could drag on into the first half of 2019", Nicola Nobile, an economist at Oxford Economics in Milan, said before the Istat report was released.

Conte, who fronts a populist coalition government that has vowed to implement a series of costly policies despite a huge national debt, said "we have no reason to lose confidence". The premier added that he did not fear the European Commission would ask Italy to pass an additional corrective budget in the light of the GDP data.

Germany, Europe's biggest economy, suffered an unexpected contraction in the third quarter largely because of changes in emissions standards that dented auto sales.

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