November 30, 2018 / 3:00 PM / 6 months ago

Italy could enter recession by year-end: Confindustria chief economist

ROME (Reuters) - The Italian economy could tumble into recession during the fourth quarter of this year, the chief economist of industrialist lobby Confindustria, Andrea Montanino, told Reuters.

Buildings are seen in the Porta Nuova district in Milan, Italy, March 27, 2017. REUTERS/Stefano Rellandini

Italy’s economy contracted in the third quarter for the first time in four years due to falling domestic demand, statistics bureau Istat said on Friday, cutting a preliminary estimate of stagnant gross domestic product.

“It’s a worrying figure that could lead us to technical recession in the last quarter of the year. We are forecasting a flat Q4 with downside risks due to falling confidence indices,” Montanino said.

An economy is said to be in recession when you get two consecutive quarters of negative growth.

Morale amongst Italian manufacturers fell in November from the previous month to its lowest level in almost two years as expectations for future production declined. Consumer confidence fell in November to its lowest level since May.

The new coalition of the anti-establishment 5-Star Movement and the right-wing League has presented a big-spending 2019 budget it says is needed to prevent Italy’s chronically sluggish economy slipping into recession.

The government, which took office in June, plans to spur the economy by lowering the pension age, cutting taxes and introducing a multi-billion-euro income support program.

The budget, which forecasts that the deficit will rise to 2.4 percent of GDP in 2019 from 1.8 percent this year, has been rejected by the European Commission because it breaches EU deficit and debt rules.

“An expansionary budget can help,” Montanino said, but added that “the main question is what you do with the money and I do not see investments in the real economy”.

The Italian government has forecast growth of 1.5 percent in 2019, but Montanino said that figure was now unobtainable. “It is out of the question,” he said.

Some 11 employers’ associations, including Confindustria, are due to meet in Turin on Monday to ask the government to forge ahead with a high-speed rail link between Turin and the French city of Lyon — a project that 5-Star has always opposed.

The link, known as TAV, is now under review.

“The debate over the TAV is paradoxical... We need such connections to move our goods abroad,” Montanino said.

Reporting by Giselda Vagnoni; Editing by Crispian Balmer

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