ROME Italy's economy contracted less than expected in the third quarter, data showed on Thursday, offering an all too brief glimmer of hope in a recession that shows no sign of ending any time soon.
Growth fell 0.2 percent in the third quarter from the second, far better than the median forecast of 0.5 percent in a Reuters survey of 28 analysts thanks to what appeared to be an improved performance by Italy's industrial sector.
"This is certainly better than I had expected," said Paolo Pizzoli, an economist at ING, who said the economy may now shrink less in 2012 overall than the government forecasts.
"But I still do not see the economy growing in the fourth quarter because business confidence is down and the outlook for foreign demand is weak."
Italy has been the European Union's most sluggish economy for more than a decade, fuelling investor concerns about its ability to bring down public debt of 126 percent of GDP.
The quarterly fall was the fifth consecutive drop for the euro zone's third-biggest economy, with the current recession now matching the length of the last one in 2008-2009.
Germany and France earlier on Thursday said their economies expanded by 0.2 percent in the third quarter. Italy, Germany and France make up two-thirds of the euro zone economy.
Unicredit economist Chiara Corsa said the Italian data, which contained no detailed breakdown, appeared to rest on an improved performance by Italian industry, especially in July and August.
"But I fear it may be too good to be true. We believe this strength in the industrial sector may not be real but rather due to summer volatility," she said.
Industrial output in the third quarter fell 0.1 percent from the previous three months, following much steeper falls of 1.6 percent in the second quarter, 2.1 percent in the first, and 2.4 percent in the fourth quarter of 2011.
ISTAT gave no numerical breakdown of GDP components with its preliminary estimate, saying only that activity contracted in agriculture and services, while manufacturing improved slightly.
GDP fell 2.4 percent year-on-year, following an upwardly revised 2.4 percent fall in the second quarter. The drop in the second quarter compared with the first was a revised 0.7 percent decline
Market pressure has eased in recent months and Italy's bond yields have come down, with three-year borrowing costs falling to their lowest in two years at an auction on Wednesday.
(Additional reporting by Giulio Piovaccari, Sabina Suzzi, Alessia Pe; Editing by John Stonestreet)