Italian economy plunges further
Fresh data yesterday showed that a recession in Italy, the eurozone's third-largest economy, deepened in the first quarter and Moody's agency slashed the ratings of its top banks.
The economy contracted by 0.8% in the first three months, according to an initial estimate from the Istat agency, after a shrinkage of 0.2% in the third quarter and of 0.7% in the fourth quarter.
"The key factor is austerity, which is weighing heavily on consumption and investment," said Chiara Corsa, an economist at UniCredit.
Corsa said she expected a further contraction in the second quarter followed by a stabilisation in the third.
Prime Minister Mario Monti was put in charge of a technocratic government last November to spare political parties the burden of pushing through painful budget cuts and long-delayed structural reforms.
Monti's popularity ratings have remained high despite growing anger as austerity measures begin to hit home.
The growth figures come a day after Moody's ratings agency slashed its credit assessment on 26 Italian banks, citing a deteriorating economy and warning that the ratings were among the lowest in Western Europe.
The latest slump was heavier than expected, with analysts polled by Dow Jones Newswires pencilling in a drop of 0.6% for the three-month period. It was also the sharpest quarterly decline since the Italian economy shrank by 3.5% in the first quarter of 2009.
On a 12-month basis, Italian gross domestic product declined by 1.3% in the first quarter, the Istat data showed. Recent figures show industrial production fell by 2.1% in the first quarter and business sentiment slumped to its lowest level since 2009.
The government revised its 2012 economic forecasts lower last month, and now expects the economy to contract by 1.2% before gaining 0.5% next year.