Italy's economy contracts by 0.2% in Q1 as recession risks increase

* Q1 GDP -0.2% q/q, 5.8% y/y, in line with forecasts

* First GDP contraction since Q4 2020

* Trade flows drag down GDP in Q1

ROME, April 29 (Reuters) - Italy’s economy shrank by 0.2% in the first quarter from the previous three months, preliminary data showed on Friday, with activity hit by the coronavirus, high commodity prices and the war in Ukraine.

On a year-on-year basis, first quarter gross domestic product in the euro zone’s third largest economy was up by 5.8%, statistics bureau ISTAT said, reflecting the depressed GDP level a year ago due to the COVID-19 pandemic.

The first quarter result, which marked the first decline in GDP since the fourth quarter of 2020, exactly matched the median forecast in a Reuters survey of 22 analysts.

Looking ahead, the outlook has been clouded by events in Ukraine which have sapped business and consumer confidence and exacerbated already surging prices and supply shortaqes.

Prime Minister Mario Draghi’s government this month revised down its 2022 economic growth forecast to 3.1% from a 4.7% projection made last September.

The latest 3.1% forecast is considered optimistic by most independent bodies. Italy’s employers’ lobby Confindustria has said the economy is heading for recession, defined as two consecutive quarters of declining GDP.

After sinking by a record 9.0% in COVID-hit 2020 and posting a partial rebound of 6.6% in 2021, this year Italian GDP was expected to finally return to its pre-pandemic level, an outcome which may now be in doubt.

ISTAT said the first quarter decline was due to negative trade flows, while domestic demand increased.

It gave no numerical breakdown of components with its preliminary estimate, but said industry had stagnated and services contracted. Agriculture, on the other hand, showed some growth.

ISTAT revised the fourth quarter of last year to show a 0.7% quarter-on-quarter rise, previously reported as 0.6%. The year-on-year rate was confirmed at 6.2%.

ISTAT gave the following details on Italian GDP in the last three quarters:

Q1 2022 Q4 2021 Q3 2021 Q/Q (pct change) 0.2 0.7r 2.5 Y/Y (pct change) 5.8 6.2 3.9