This article is more than 7 months old

This article is more than 7 months old

Italy’s economy fell into recession in the final three months of 2018, in a blow to the country’s governing radical centre-right coalition, which pledged to boost the country’s persistently low GDP growth.

The 0.2% drop in the eurozone’s third largest economy between October and December followed a 0.1% fall in the previous three months, the Italian statistics agency said. Declining GDP growth over two consecutive quarters put Italy in recession. It is the third time the country has fallen into recession in a decade.

Amid weakening growth rates across the eurozone, which led to the 19-member currency bloc increasing its GDP by only 0.2% in the final three months of 2018, Italy is likely to be forced to rewrite its forecasts for growth in 2019.

James Athey of Aberdeen Standard Investments said: “The growth forecasts on which the budget was based have already been blown out of the water and eurozone growth continues to weaken. Italy is going to have to face up to some real problems.”

Italy’s economy has been shrinking steadily since the rightwing League party formed a coalition with the anti-establishment Five Star Movement.

Analysts have blamed much of the slump on a running battle between Rome and Brussels over the coalition’s plans to increase its budget deficit and stimulate the economy with a range of tax cuts and spending increases.

The dispute ran for months, hurting economic confidence and driving up Italy’s borrowing costs, before a settlement was reached just before Christmas.

Italy’s prime minister, Giuseppe Conte, blamed the recession on external factors, including trade tensions between the US and China.

The deputy prime minister Luigi Di Maio, the head of the Five Star Movement, said the recession was proof that Europe’s budget rules should be relaxed to allow Italy to stimulate its economy back to growth.

Di Maio heaped blame for the downturn on the previous centre-left government, which was ousted last spring. He said this year’s EU parliamentary elections would effectively be a referendum on eurozone fiscal policy, adding: “I believe this referendum will have a positive outcome for those who are against austerity.”

Andrea Iannelli, an investment analyst at the fund manager Fidelity International, said the government was right to highlight falling demand from its neighbours and trade wars for the country’s woes.

“However, the standoff between the government and the European authorities over the budget in the summer of 2018 has exacerbated the country’s weaknesses.

“The sell-off in Italian assets and rise in yields is now feeding through into tighter lending conditions and weaker macro data,” he said.

The EU statistics agency, Eurostat, said the eurozone expanded by 1.8% in 2018 overall, the slowest rate of growth since 2014 and significantly down from 2017’s 2.3%.

One indication of the general slowdown across the continent came from European companies listed on the Stoxx 600 index, which have begun to report weaker earnings growth. The latest analysis by I/B/E/S Refinitiv shows profits are rising by an average 3.6% compared with the 4.8% expected last week and the 6% expected at the beginning of the year.

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

Uncertainty over Britain’s exit from the EU also weighed on sentiment that is expected to drag down growth in the final quarter when the data becomes available next month.

German retail sales fell at their steepest rate since 2007 in December and exports of cars to China also declined.

The dip in the eurozone’s fortunes could prompt the European Central Bank, which predicted a 0.4% growth rate in the final quarter, to cut its growth forecast of 1.7% for 2019.

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In separate figures released by Eurostat, unemployment in the eurozone remained at 7.9%. It equalled its lowest rate in more than 10 years in December and matched economists’ forecasts.

The jobless rates fell slightly in Italy and Spain, which still have the highest unemployment levels in the eurozone after Greece. Across the eurozone 75,000 fewer people were out of work than in November.

In the wider 28-country European Union, the jobless rate was 6.6% in December, also unchanged from November.</s>The Italian economy shrank by 0.2% during the quarter for the three months to December of 2018, following a 0.1% contraction in the previous period. This was slightly more than market expectations of a 0.1% decrease. It marked the second consecutive quarter of contraction so throwing the country into recession.

Just to be clear; a recession is defined by economists as gross domestic product (GDP) falling for two consecutive quarters. The new figures mark the third recession experienced by Italy since the global financial crisis more than a decade ago.

The statistics body ISTAT said in a statement:

Since the middle of last year, the coalition government in Rome has been at odds with European Union (EU) finance officials over its controversial budget that would breach the EU budgetary rules.

The Italian government were able to pass their monetary agreement at the end of December, and so averted a major showdown with the EU. The government in Rome had proposed a debt target of 2.4% of GDP but the EU would only allow 2.04% for 2019, falling to 1.8 percent next year and 1.5% in 2021. The government had said higher economic growth would alleviate any budget breaking fears held by the EU.

However, what the latest round of economic data reveals is that business confidence in Italy fell to its lowest level for more than two years, marking a fourth consecutive decline.

Business confidence (an index) fell to 99.2 in January, its lowest level since August 2016, down from 99.7 in December, according to data from ISTAT. On top of this manufacturing confidence slipped to 102.1 in January, its worst reading since September 2016, down from 103.4 in December.

The only bright spot in the Italian economy was found in consumer confidence which rose in January to 114.0 from 113.2 the month before. This can be neutralised as the level of households debt in Italy stands at 61.12% of gross income versus an average of 53.38% since 2000.

Brexit is an issue for the wider EU, not just the Eurozone, however, one cannot overlook the fact that Italian economy has become a mounting reason of concern over the past few months. Just look at the movement of the 10-year spread of Italian government bonds over the German equivalent.

This morning the spread is +242.3 basis points or 2.423%. The rolling 12-month average is just +217 basis points. The market is expressing its concern in the spread of Italian debt over the Eurozone benchmark.

The EU Commission knows that with a debt to GDP ratio of 131.8%, Italy has the second largest debt burden in relative terms...second only to Greece. However, the Italian economy is eight times as large as that of Greece and given the Eurozone is still haunted by the memory of the debt crisis that required bailouts for several countries it has insisted that the Italian government rein back on its spending plans. To be blunt, Italy could not be bailed out. It is so large; a crisis would cripple the Eurozone.

The Eurozone economy itself grew by a rather pale 0.2% in the final quarter of 2018, the same as in the previous quarter, according to provisional figures released Thursday by the Eurostat statistics agency.

It grew by 1.8% in 2018 overall. This must be noted as the weakest rate in four years and is certainly far lower than had been anticipated a year ago, when the bloc was expected to slow only slightly from 2017's strong 2.4%. No wonder the President of the European Central Bank (ECB), Mario Draghi has been even hinting at new measures to cushion the region’s economy.

Of course, the attitude in Rome is to shrug off the weak data as the Italian Prime Minister, Giuseppe Conte sought to downplay the recession. He looked to a wider horizon as to where blame should be placed citing the trade breakdown between the United States and China. Mr Conte claims this has weighed on Italian exports. He is wrong to do this as the U.S. accounts for just 6.6% of all Italian exports and China is not among its top five export clients. This is far more than a “...transitory factor..." which is what he told reporters in Rome.

So, one must now raise serious questions over Italy’s growth plans. Boosting GDP by 1% this year is looking an unachievable target. That implies, that the coalition is going to be forced into changing its spending schedule...but probably not until after May’s European parliamentary elections.</s>Italy is back in recession, its third since the 2008 financial crisis, and the rest of Europe is slowing down too as Brexit, the gilets jaunes protests in France and the global tariff wars put pressure on the economy.

The Italian contraction came as a blow to the country’s populist coalition government, which had promised a growth spurt fuelled by hefty deficit spending. While Prime Minister Giuseppe Conte insisted on Thursday that the economy would bounce back this year, other worrying economic signs, such as a manufacturing slump and the slowdown in Germany, suggest growth may not come back as fast as he predicts.

Italy, the euro zone’s third-biggest economy, is in technical recession, typically defined as two successive quarters of negative growth. Gross domestic product in the last three months of 2018 contracted by a deeper-than-expected 0.2 per cent, the national statistics office confirmed. In the previous three months, the economy contracted by 0.1 per cent.

Since the euro was launched 20 years ago this month, Italy has been a perennial underperformer, to the point where the two ruling parties – the League and the Five Star Movement – are losing their enthusiasm for the common currency. While neither party has said it wants to ditch the euro and reprint the lira, which could be devalued, both parties had talked about holding a referendum on the euro when they were in opposition.

The Italian economy is about a quarter larger than the Canadian economy. If its downturn persists, it could drag down the rest of the euro zone, whose growth outlook was looking shaky even before it was known that Italy was sinking as fast as it is.

Germany, Europe’s biggest economy and the continent’s economic driver, unexpectedly lost momentum in the third quarter of 2018, with a contraction of 0.2 per cent over the previous quarter. German GDP expanded at only 1.5 per cent last year, compared with growth of 2.2 per cent in 2017. German retail sales fell in December at their steepest rate since 2007, and car exports to China are on the wane.

If Britain crashes out of the European Union on March 29 – the official Brexit date – without a trade deal, German car exports could take a dive. Britain is one of Germany’s biggest markets for BMW, Mercedes-Benz and Volkswagen.

The German government has already cut its growth projection for 2019 to 1 per cent – the lowest pace in six years – from 1.8 per cent. Almost all of the country’s economic indicators are pointing in the wrong direction, and a recession is not being ruled out. The German economy is highly reliant on exports, and as world trade decelerates because of new tariffs and the threat of an all-out trade war between the United States and China, the German export machine can only suffer. A hard Brexit would deepen the downturn.

Mr. Conte was quick to blame external factors for Italy’s downturn, such as the global tariff tensions and last year’s battle with the European Commission over Italy’s budget deficit. The EC wanted Italy to spend less, and after months of bickering that rattled Italian debt markets, the country only partly complied, agreeing to run a deficit this year of 2 per cent of GDP, down from 2.4 per cent.

Mr. Conte on Thursday said “I am not worried” about the two consecutive quarters of contraction, calling the dip “transitory.” He predicted that when the new budget measures – including new pension and welfare spending – kick in, Italian growth will resume.

But some strategists and economists think Italy might not get so lucky. “The growth forecasts on which the budget was based have already been blown out of the water, and euro-zone growth continues to weaken,” said James Athey, a portfolio manager at London’s Aberdeen Standard Investments. “Italy is going to have to face up to some real problems."</s>Prime Minister Giuseppe Conte's government is locked in a battle with Brussels over its budget

Italy has become the first major European economy to face a technical recession in five years.

The Italian economy shrank by 0.2% in the final quarter of 2018, according to official figures published this morning. It follows a 0.1% fall in the third quarter. Most economists define a recession as two successive quarters of contraction.

Although the depth of the recession is shallow, it will nonetheless be seen as important watershed for the European economy, which last faced a continent-wide slump during the late stages of the euro crisis in 2012 and 2013.

Italy's anti-establishment coalition government is currently locked in a battle with the European Commission over its budget, which aims to borrow more than the EC guidelines.

However, the country's economic growth has been dragged down by a generalised slowdown around the continent.

Europe's biggest economy, Germany, is expected to narrowly avoid recession, but contracted in the third quarter.

The weakness in late 2018 is partly being put down to a slump in world trade activity, amid fears that US tariffs on China are finally starting to bite.

According to the Italian statistical agency Istat, the decline was primarily due to a "decrease of value added in agriculture, forestry and fishing as well as in industry".</s>(MILAN) — Italy has fallen back into recession, intensifying concerns about the 19-country eurozone economy and a possible flare-up in the debt market jitters that had haunted the bloc in recent years.

The Italian economy, the third-largest in the eurozone, contracted by a quarterly rate of 0.2 percent in the fourth quarter of 2018, the national statistics agency said.

Following a 0.1 percent drop in the previous three-month period that means Italy is in a technical recession, defined as two straight quarters of economic contraction — just four years after its last one.

Italy’s recession is one reason why the wider eurozone slowed in 2018, along with uncertainties related to Brexit, the China-U.S. trade spat and new vehicle emissions standards.

Though the eurozone is performing better than in the dark days of the debt crisis, which threatened to break up the euro currency, it’s still lagging the U.S. economy, which is projected to have grown about 3 percent in 2018. As a result, unemployment in the eurozone is about double the U.S.’s 4 percent at 7.9 percent.

The eurozone economy as a whole grew by a meager 0.2 percent in the final quarter, the same as in the previous quarter, according to provisional figures released Thursday by the Eurostat statistics agency.

It expanded by 1.8 percent in 2018 overall, its weakest rate in four years. That’s lower than had been anticipated a year ago, when the bloc was expected to slow only slightly from 2017’s strong 2.4 percent rate.

The Italian economy has become an acute source of concern over the past few months, partly as a result of the new populist government’s spat with the European Union’s executive Commission over its budget plans, which has undermined business confidence and seen Italian borrowing rates in bond markets spike higher.

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. It wants to provide more social security payments and to roll back a pension reform.

The plan means Italy would not reduce its debt load, which at over 130 percent is the highest in Europe after Greece.

The EU Commission is still haunted by the memory of the debt crisis, which required eurozone governments, along with some assistance from the International Monetary Fund, to bailout a number of countries. The Commission has insisted that the Italian government rein back on its spending plans lest it loses control of its budget and the faith of bond market investors.

Though most economists think the budget impasse with the Commission has undermined confidence in the Italian economy, the country’s premier, Giuseppe Conte, sought to downplay the recession and placed the blame firmly on the trade spat between the United States and China, which he says has weighed on Italian exports.

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

The head of Italy’s UNC consumer advocate organization, Massimiliano Dona, said the weak figures raise questions over the Italian government’s prediction that the economy will grow by 1 percent in 2019. He said that could mean the government will have to adjust its spending plans.

Italy hasn’t been the only reason why the eurozone slowed in 2019. Germany, Europe’s biggest economy, suffered an unexpected contraction in the third quarter largely due to changes in emissions standards that hurt auto sales. And uncertainty over Britain’s exit from the EU has weighed on sentiment, as has the fear of a global trade war stoked largely by growing tensions between the United States and China.

Separate economic indicators point to further weakness at the start of 2019 and most economists expect a difficult period ahead if the main causes of uncertainty are not addressed soon.

“The continued decline in sentiment indicates that the underlying pace of growth has slowed even further,” said Christoph Weil, an economist at Commerzbank. “Uncertainty about economic developments in China, the unresolved trade conflict between the U.S. and China and Brexit continue to weigh on the economic outlook for 2019.”</s>MILAN (AP) — Italy has slipped back into recession just four years after its last one, official figures showed Thursday, in a development that’s likely to renew concerns about the outlook for the 19-country eurozone economy.

The Italian statistics agency said that the country’s economy, the third-largest in the eurozone, contracted by a quarterly rate of 0.2 percent in the fourth quarter. 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.

Italy’s recession is one reason why the wider eurozone slowed in 2018. Statistics agency Eurostat said Thursday that the eurozone grew by a meager 0.2 percent in the final quarter, the same as in the previous quarter.

As a result, the eurozone economy expanded by 1.8 percent in 2018 overall. That’s lower than had been anticipated a year ago, when the bloc was expected to slow only slightly from 2017’s strong 2.3 percent rate.

The Italian economy has become an acute source of concern over the past few months, partly as a result of the new populist government’s spat with the European Union’s executive Commission over its budget plans. The government wants to ramp up spending to get the Italian economy going by providing more social security payments and rolling back a pension reform.

Ahead of the confirmation of the recession, Italian Premier Giuseppe Conte had said Wednesday that even if the contraction continues into the first months of 2019 “there are elements to hope for redemption in the second half.”

The EU Commission, worried about a renewed flare-up of the region’s dormant debt crisis, has insisted that the Italian government rein back on its spending plans because they have the potential to further swell the country’s high debt levels.

Italy hasn’t been the only reason why the eurozone slowed in 2019. Germany, Europe’s biggest economy, suffered an unexpected contraction in the third quarter largely due to changes in emissions standards that hurt auto sales. And uncertainty over Britain’s exit from the EU has weighed on sentiment, as has the fear of a global trade war stoked largely by growing tensions between the United States and China.

Separate economic indicators point to further weakness at the start of 2019 and most economists expect a difficult period ahead if the main causes of uncertainty are not addressed soon.

“The continued decline in sentiment indicates that the underlying pace of growth has slowed even further,” said Christoph Weil, an economist at Commerzbank. “Uncertainty about economic developments in China, the unresolved trade conflict between the U.S. and China and Brexit continue to weigh on the economic outlook for 2019.”</s>ROME (Reuters) - Italy’s economy contracted for the second consecutive quarter at the end of last year, throwing the country into recession in a setback for the new anti-establishment government.

Gross domestic product fell a quarterly 0.2 percent between October and December, following a 0.1 percent decline in the third quarter, and was up 0.1 percent on an annual basis, national statistics bureau ISTAT reported on Thursday.

The fourth quarter decline was steeper than expected. A Reuters survey of analysts had pointed to a 0.1 percent fall quarter-on-quarter and a 0.3 percent year-on-year rise.

Analysts often define two straight quarters of declining GDP as a “technical” recession, though the Italian economy grew in 2018 as a whole and is expected to expand modestly this year.

The data confirmed Italy’s customary position among the growth laggards of the euro zone. The 19-nation bloc grew a listless 0.2 percent in the fourth quarter, Eurostat said, in line with market expectations.

That was the same rate as in the third quarter, which had been the lowest for four years, while the euro zone’s 1.2 percent year-on-year expansion was a new five-year low.

The data presents a quandary for the European Central Bank, which ended its bond-buying stimulus program late last year and risks running low on firepower as the economy slows.

In December the ECB forecast fourth quarter growth of 0.4 percent, double the final outturn, and its full-year 2019 forecast of 1.7 percent already looks ambitious.

The Italian government which took office in June last year was quick to blame its center-left predecessors for the latest slump. Deputy Prime Minister Luigi Di Maio said the data “certified the failure of the entire political class which Italians sent packing” at last year’s election.

Prime Minister Giuseppe Conte said government measures would ensure a firm recovery from the second half of this year.

Conte pointed out the euro zone’s third-largest economy has been weakening since early 2017 and has recently been hit by a slowdown in main trading partners such as China and Germany.

Critics say the coalition parties worsened the situation by fighting with Brussels over fiscal policy, damaging market confidence which pushed up Italy’s borrowing costs and hurt the economy.

Over the whole of 2018, growth came in at 1 percent, down from 1.6 percent in 2017.

In the third quarter, GDP contracted by an unrevised 0.1 percent, the first fall in four years, and rose 0.6 percent annually, revised down from a previously reported 0.7 percent.

ISTAT said the quarterly contraction at the end of the year was due to a fall in domestic demand, which outweighed a positive contribution from trade flows.

It gave no numerical breakdown of components with its preliminary estimate, but said industry and agriculture had been negative, while the service sector was “substantially stable”.

The government of the anti-establishment 5-Star Movement and the right-wing League has targeted GDP growth of 1 percent this year, but most independent bodies expect it to be little more than half that.

A Reuters survey of 46 economists published this month forecast 2019 growth of 0.7 percent. The Bank of Italy and the International Monetary Fund both forecast 0.6 percent.

“We expect GDP to expand by 0.5 percent in 2019, and this underpins our expectation Italy’s GDP will return to modestly positive quarterly growth during the year,” UniCredit economist Loredana Federico said after the Q4 figures.

“Focus now seems to have shifted towards further weakness from abroad, away from domestic-specific weakness.”

The coalition approved an expansionary budget in December aimed at heading off the growing threat of recession.

The budget, which was watered down after European Commission objections it would not lower Italy’s high public debt, features a new income support scheme for the poor and allows people to retire earlier. It also slashes taxes for the self-employed.

ISTAT said in November the budget would support private consumption this year, and forecast growth of 1.3 percent, but since then the international outlook has darkened.

Italy has been the euro zone’s most sluggish economy since the start of monetary union, and few analysts believe the budget can turn things around in the face of a broad European slowdown, trade tensions and Italy’s chronically stagnant productivity.</s>2019: What to expect in Europe and Russia in the New Year?

2019: What to expect in Europe and Russia in the New Year?

Milan - Italy has slipped back into recession just four years after its last one, official figures showed Thursday. It's a development likely to renew concerns about the outlook for the 19-country eurozone economy.

The Italian statistics agency said the country's economy, the eurozone's third-largest, contracted by a quarterly rate of 0.2 percent in the fourth quarter. That follows a 0.1 percent drop in GDP in the previous three-month period, meaning Italy is in a technical recession, defined as two straight quarters of economic contraction.

Italy's recession is one reason why the wider eurozone slowed in 2018. Statistics agency Eurostat said Thursday the eurozone grew by a meager 0.2 percent in the final quarter, the same as in the previous period.

As a result, the eurozone economy expanded by 1.8 percent in 2018 overall. That's lower than had been anticipated a year ago, when the bloc was expected to slow only slightly from 2017's strong 2.3 percent rate.

Italy's slump is adding concerns for the region's 2019 outlook. "Eurozone data releases have provided a poor start to the year with growing fears of a global slowdown and sentiment continuing to plummet," Oxford Economics wrote in a Thursday note. "Lower external demand [has been] a strong drag on the bloc's manufacturing sector. But today's release of Italian Q4 GDP showed that it was weak domestic demand that dragged Italy into a recession in H2 2018."

The Italian economy has become an acute source of concern over the past few months, partly as a result of the new populist government's spat with the European Union's Executive Commission over its budget plans. The government wants to ramp up spending to get the Italian economy going by providing more social security payments and rolling back a pension reform.

Ahead of the confirmation of the recession, Italian Premier Giuseppe Conte had said Wednesday that even if the contraction continues into the first months of 2019 "there are elements to hope for redemption in the second half."

The EU Commission, worried about a renewed flare-up of the region's dormant debt crisis, has insisted that the Italian government rein back its spending plans because they have the potential to further swell the country's high debt levels.

Italy hasn't been the only reason the eurozone slowed in 2019. Germany, Europe's biggest economy, suffered an unexpected contraction in the third quarter largely due to changes in emissions standards that hurt auto sales. And uncertainty over Britain's exit from the EU has weighed on sentiment, as has the fear of a global trade war stoked largely by growing tensions between the U.S. and China.

Separate economic indicators point to further weakness at the start of 2019, and most economists expect a difficult period ahead if the main causes of uncertainty aren't addressed soon.

"The continued decline in sentiment indicates that the underlying pace of growth has slowed even further," said Christoph Weil, an economist at Commerzbank. "Uncertainty about economic developments in China, the unresolved trade conflict between the U.S. and China, and Brexit continue to weigh on the economic outlook for 2019."</s>Italian Prime Minister Giuseppe Conte says he expects a "further contraction of gross domestic product" (AFP Photo/Iakovos HATZISTAVROU)

Rome (AFP) - Italy's Prime Minister Giuseppe Conte said Wednesday that the economy probably contracted in the fourth quarter, which if true would plunge the country into a recession.

The gross domestic product (GDP) data for the fourth quarter of 2018 is set to be released Thursday by the ISTAT national statistics office.

"I expect a further contraction of gross domestic product," Conte said at a business conference in Milan.

It would make it the second consecutive quarter of falling GDP -- after a drop of 0.1 percent in the third quarter -- and would tip Italy into recession.

"Analysts tell us we'll likely still suffer a bit at the start of this year," he said, pointing the finger at a slowdown in China and Germany which are hurting Italian exports.

"But all the elements are there to recover in the second half," he said.

A recession is likely to put pressure on the spending plans of Italy's populist government.

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

A slowdown will make it even harder to follow through on expensive vote-winning measures both parties promised their bases.</s>In Italy, official data shows it shrank 0.2% in the final quarter of last year after a 0.1% drop in the third quarter. The technical definition of a recession is economic contraction for two quarters in a row.

LONDON, United Kingdom – The eurozone's main stock markets faltered Thursday, January 31, with Milan sliding on gloomy news that the Italian economy has officially entered a recession, but London was buoyed by upbeat corporate earnings.

In early afternoon deals, Milan stocks were down nearly 1%, with Frankfurt not far behind and Paris slightly down.

London rose, with drinks group Diageo rising strongly on a share buyback and solid earnings, while energy giant Royal Dutch Shell stock jumped on soaring annual profits.

In Italy meanwhile, official data showed that the eurozone's third largest economy shrank 0.2% in the final quarter of last year after a 0.1% drop in the third quarter.

The technical definition of a recession is economic contraction for two quarters in a row.

"The risk of recession in the eurozone is something that has been widely discussed for weeks now but the news that Italy has fallen into technical recession still comes as a blow to the region," Oanda analyst Craig Erlam told AFP.

"Others could also follow with Germany having posted negative growth in the third quarter. This is naturally weighing on sentiment," Erlam warned.

Data also showed that expansion in the overall eurozone economy slowed sharply to 1.8% in 2018 after 2.4% the previous year, as slumping German exports and Brexit worries sapped momentum.

However, growth hit an anemic 0.2% in the October to December period, the same as the previous quarter, the Eurostat agency added.

Italy's recession places intense pressure on the nation's populist government, headed by Prime Minister Giuseppe Conte who took power in June on the back of big-spending electoral promises.

"This (recession) should not really be a surprise given the direction of travel of recent data," CMC Markets analyst Michael Hewson told AFP.

"The problem EU policymakers have is that it looks as if it could well me much more serious than originally thought.

"If that is the case it makes it much more likely that the Italian government will feel compelled to breach its deficit targets even further.

"The deterioration in the data thus makes a renewed conflict with the EU Commission much more likely," Hewson added.

Elsewhere Thursday, the dollar extended losses after the Federal Reserve signalled it would slow down its pace of interest rate hikes, providing some much-needed respite to investors fretting over the cost of borrowing.

Dealers are also keeping an eye on top-level talks between China and the United States aimed at resolving their long-running trade war, which kicked off on Wednesday.
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Italy's economy falls into recession for the third time in a decade after declining GDP growth in late 2018. Italian Prime Minister Giuseppe Conte blames the recession on external factors, including trade tensions between the United States and China.