ROME (Reuters) - Italy’s economy shrank by more than expected in the first quarter, extending the country’s recession to seven straight quarters and making it the longest since quarterly records began in 1970.
Gross domestic product fell 0.5 percent following a 0.9 contraction in the fourth quarter of last year and contracted 2.3 percent on an annual basis, national statistics bureau ISTAT reported on Wednesday.
“This is worse than expected and offers no sign of any end to the recession,” said Giada Giani of Citigroup, who forecast that the second quarter would see another contraction of broadly the same size.
“We knew domestic demand contracted but this number, as well as the data we have seen in other countries, suggests exports may also have been weak,” she added.
A Reuters survey of analysts had pointed to a first quarter contraction of 0.3 percent, down 2.2 percent annually.
New Prime Minister Enrico Letta, who took office last month at the head of a broad left-right coalition, faces an arduous task to try to stimulate the economy while keeping a rein on public finances.
Labour Minister Enrico Giovannini, who was head of ISTAT until joining the government, said this month that Italy’s current economic crisis was the worst since the founding of the republic after World War Two.
ISTAT said last week it expects GDP to fall 1.4 percent this year following the contraction of 2.4 percent in 2012.
Leading indicators point to another fall in GDP between April and June, though perhaps a smaller one than in the first quarter.
ISTAT gave no numerical breakdown of GDP components with its preliminary estimate, saying only that activity in industry and services both contracted, while agriculture expanded.
It said so called “acquired growth” at the end of the first quarter stood at -1.5 percent.
This means that if GDP posts a flat quarterly reading in the final three months of 2013, over the whole year it will be down 1.5 percent from the previous year.
The official forecast inherited by Letta from his predecessor Mario Monti envisaged a full year contraction of 1.3 percent, but most analysts say this is already looking too optimistic, with negative repercussions for public finances.
New Economy Minister Fabrizio Saccomanni says Rome will keep its fiscal gap below the European Union’s 3 percent limit but the Paris-based Organisation for Economic Cooperation and Development is more downbeat.
This month it forecast that Italy’s budget deficit will rise to 3.3 percent of output this year, compared with Rome’s 2.9 percent target, and would reach 3.8 percent in 2014.
Despite waves of austerity adopted by Monti, Italy’s huge public debt will rise to a new record of 131.5 percent of output this year, the OECD said, and climb further to 134.2 percent, rather than fall to 129 percent as envisaged by Rome’s targets.
Editing by James Mackenzie