Italian economy contracts 0.7% in second quarter

Italy's abridgement shrank 0.7% in the additional quarter, underlining a deepening recession, as government acerbity measures abide to affect aggregate from branch action to customer spending.

Italy's GDP fell for the fourth division in a row, basic abstracts showed.

Compared with a year earlier, advance angled by 2.5%, Istat said.

GDP fell by 0.8% in the aboriginal division compared with the final three months of 2011, the statistical bureau said.

Earlier, abstracts showed that branch achievement in June angled 1.4% compared to May and 8.2% year on year.

"The acerbity measures are acutely belief on the economy," said Vincenzo Bova of MPS Capital Services. "Investments and consumption, both clandestine and public, are the hardest-hit areas," he added.

Prime Minister Mario Monti's government is implementing a alternation of acerbity measures account 20bn euros (£15.8bn) as it grapples with ascent borrowing costs, apprenticed by bazaar fears over the addition eurozone absolute debt crisis.

But investors are afraid Italy - the eurozone's third better abridgement - may be abutting in band to ache the aforementioned ordeals that accept hit Greece, Portugal and now Spain.

'No assurance of change' from recession

Italy's government has the better debt accountability of any of the above eurozone countries at 123% of GDP, which makes it decidedly affected to a accident of bazaar aplomb - article that would accomplish it absurd for the government to cycle over its debts as they appear due for payment.

Despite the acerbity measures investors accept connected to dump Italian absolute bonds, which accept pushed their yields abutting to unsustainable levels as markets abhorrence a breakdown of the euro.

Italian business aplomb fell aftermost month, as aggregation admiral are added bleak over the country's bread-and-butter affairs and apprehend the recession to aggravate in advancing months.

Employers' antechamber accumulation Confindustria predicts that the abridgement will compress 2.4% this year, with unemployment aerial about 11%. The government's forecasts the abridgement to arrangement by 1.2%.

"There is no assurance of any change of trend for Italy," said Annamaria Grimaldi, an analyst at Intesa Sanpaolo.

Mr Monti has been aggravating to actuate added European leaders to accord Italy some breath amplitude to acquiesce its abridgement to grow, rather than afraid to bound budgetary targets that accept contributed to the recession's deepening.

In an account with Der Spiegel at the weekend, Mr Monti said: "If aggregate goes according to plan, I will abide in appointment until April 2013, and I achievement that I can accomplishment Italy from banking ruin by again - and this with moral abutment from a few European friends, led by Germany. But I will additionally say actual clearly: moral support, not financial."

Germany and added countries "should acquiesce a bit added elbowroom to those states in the euro area that chase European guidelines the best closely", he added.

But Mr Monti has struggled to clean accessible aplomb in his administration aback home, area his acceptance has plunged from almanac levels back he took appointment aftermost year. In fact, there is ascent belief that his antecedent Silvio Berlusconi may be authoritative a comeback.