Italy Now Officially In Recession

Italy, Europe's fourth-largest economy, fell into recession in 2011, as a debt crisis and austerity measures combined to slow growth for two consecutive quarters, according to data released Monday.

The Italian economy shrank 0.7 percent in the fourth quarter of last year, following a 0.2 percent fall during the third quarter, according to Italy's national statistics agency Istat. The economy grew 0.5 percent for all of 2011.

The shrinkage was driven by falling domestic demand, while exports remained flat and imports declined 2.5 percent. Household consumption was down for a third consecutive quarter.

The International Monetary Fund expects Italy's economy to shrink 2.2 percent this year, while the nation's government forecast a smaller contraction of 0.4 percent to 0.5 percent.

Declining gross domestic product in consecutive quarters gives credence to analysts' bearish outlook, according the Wall Street Journal.

Looking ahead, prospects for Italian activity are not brighter in the near term, said analysts at Newedge Strategy, according to the Journal. Although [long-term refinancing operations] have injected confidence in the periphery bond markets and structural reforms presented by [Prime Minister Mario] Monti will support activity in the medium-to-long term, GDP is still expected to contract by around 1.5 percent in 2012 as the recent fiscal tightening measures and global easing in demand weigh on the structurally weak Italian economy.