Italian economy unexpectedly shrinks as production is cut

Rome : Italy's economy unexpectedly shrank in the fourth quarter as manufacturers cut back on production even after the country emerged from its worst recession in more than six decades.

Gross domestic product fell 0.2 per cent after rising 0.6 per cent in the previous three months, Rome-based national statistics institute Istat said yesterday. Economists had forecast 0.1 per cent growth, according to the median of 20 forecasts in a Bloomberg survey. Adjusted for working days, the economy shrank 4.9 per cent last year, Istat said.

The contraction likely "reflects a technical correction after an excessively strong third quarter," Marco Valli, chief Italian economist at UniCredit Research in Milan, said in a note. "The setback in industrial production after the summer surge weighed on the GDP performance."

Industrial production unexpectedly fell 0.7 per cent in December on lower energy and equipment output, a report last week showed. Italy's economic recovery will be "weak" as rising unemployment curtails household spending, the country's central bank said on January 15.

Employment

The jobless rate rose to a seasonally adjusted 8.5 per cent in December, the highest since at least 2004, as businesses kept shedding jobs even after the economy emerged from a five-quarter slump in the three months through September.