Italy Slips Back Into Recession
For the third time in ten years, Italy has fallen into economic recession. According to data published by the Italian National Institute of Statistics on Jan. 31, Italy’s GDP decreased by 0.2 percent in the fourth quarter of 2018. The Italian economy, the third largest in the eurozone, also saw a decline in growth of 0.1 percent in the third quarter of 2018. Two consecutive quarters of contraction indicate a recession.
Other figures released on Jan. 31, by the Eurostat statistics agency, report that the eurozone economy expanded by just 0.2 percent in the fourth quarter, as it did in the third quarter. The eurozone economy as a whole grew by 1.8 percent in 2018, its worst performance in 4 years. In addition to Italy’s recession, Brexit, the US-China trade war and new vehicle emissions standards have contributed to the slow growth of the eurozone economy.
The poor performance of the Italian economy is expected to increase tensions between the European Commission and Italy’s populist government. Italy has become a cause for concern over the past few months, partially because of its disagreement with the European Commission over budget plans which led to a surge in borrowing rates.
At $2.6 trillion, the Italian government’s debt load is the highest in the EU and fourth-highest in the world. The European Central Bank no longer has the ability it once had to help the Italian government alleviate itself of its debt burden.
“We have weaker economic momentum and at the same time the E.C.B. is getting out of the market,” Katharina Utermöhl, an economist at Allianz, told The New York Times. “That means there is less room for policy mistakes.”
However, Italian Prime Minister Giuseppe Conte has been blaming the recession on external factors, claiming the country’s economic woes are unrelated to his government. He stated that the Italian economy would expand in the second half of 2019, anticipating 1.5 percent growth, while the Bank of Italy and the International Monetary Fund predict an increase of just 0.6 percent.
The current Italian government was elected after years of poor economic performance. In order to meet its campaign promises of stimulating and expanding the economy, it planned on introducing projects and reforms to increase government spending. Conte now faces a dilemma; he can try to carry out his campaign promises at the risk of overspending, or abide by the European Commission’s guidelines which may damage his approval ratings.