Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Rising Euro Pushes Italy Into Recession

ROME -- Italy slipped into a mild recession in the first half of the year for the first time in over a decade, preliminary figures released Friday showed, as the euro's sharp rise hit its export-driven economy.

Italy's figures -- the first to be released from the euro zone -- greatly increase the chances that the 12-country area as a whole will see second-quarter gross domestic product shrink for the first time since the Sept. 11 attacks, economist said.

Preliminary data from statistics bureau Istat showed that Italy's gross domestic product contracted a quarterly 0.1 percent in the April to June period -- the same decline as in the first quarter.

A recession is technically defined by economists as two consecutive quarterly declines in GDP. But Istat warned that with this economic cycle it is difficult to tell the difference between stagnation and recession.

"The latest GDP figures confirm that this is a difficult moment in the economic cycle," Deputy Economy Minister Mario Baldassarri said. He said the government would have to find the right way to trigger growth in its upcoming budget, which will be presented in September and is due to be approved by parliament before the end of the year.

Prime Minister Silvio Berlusconi's conservative government plans to trim the corporate tax rate next year to give the economy a boost. For its 2004 budget, it is aiming to raise some 16 billion euros ($18 billion) from spending cuts and one-off revenue-raising measures in order to keep the deficit in line with European Union requirements.

The data released Friday was in line with economists' expectations.

"Due to continued strength in the euro, it looks as though net exports were the main negative element for growth in the second quarter," said Giada Giani, economist at Italy's largest bank, Banca Intesa SpA.

Italian exports account for around 30 percent of its GDP.

In the first half of 2003, Italy registered a trade deficit with non-EU countries of 123 million euros ($139.9 million), compared with a surplus of 3.7 billion euros ($4.2 billion) in the first six months of 2002. Italian exports outside Europe fell six percent on the year in June.

Germany, Europe's largest economy, is also expected to fall into recession when second-quarter GDP data is released next week. The German and Italian economies combined account for almost half of the euro zone's GDP. For the whole of 2003, economists put Italian growth at 0.4 percent -- the same as in 2002 and half the government's target.

Istat said that if GDP remains flat in the second half, Italy will grow by just 0.2 percent this year.

Istat will provide a breakdown of the GDP figures only when it releases final figures Sept. 10. However, the statistics body blamed the poor result on agriculture and industry, and said that output from the services sector showed a modest increase.