In economic terms, a recession is defined as two (or more) successive financial quarters where a nation’s Gross Domestic Product (GDP) contracts.
The Italian economy shrank by 0.1% in Q3 2018 and by 0.2% in the final quarter of the year, pushing it into recession. The Italian prime Minister, Giuseppe Conte believes that the recession is likely to continue at least into the first quarter of 2019. The Italian economy is the third largest in the Eurozone, behind Germany’s and France’s.
Italy’s statistical office, Istat, which is responsible for producing the data explained that despite a rise in net exports, downturns in agriculture, forestry, fishing and the industrial sectors were responsible for the contraction.
The shrinking Italian economy means that the exchequer will collect less tax than previously. As a consequence, any shortfall between government expenditure and receipts will need to be met by borrowing. Italy already has the biggest public debt in the Eurozone at about €2.3 trillion (by comparison, Greek public debt stands at about €390 billion – roughly a sixth!). Indeed, Italy has the fourth largest government debt in the world behind Japan, Lebanon and Yemen. If debt is expressed as a ratio to GDP, Italy ranks second behind Greece as the most indebted nation in the Eurozone (132% of GDP cf 182%). These facts explain why the EC was so concerned about Italian plans to spend their way into economic growth, recently, taking the extraordinary step of opposing Italy’s proposed budget. The EC requires that all Eurozone member states should be approved to ensure the stability of the Euro, this was a measure decided by the EU when the launch of the Euro was proposed and is part of the convergence criteria.
As a whole, growth in the Eurozone for Q4 2018 came in at 0.3%.