MILAN – Italy’s economy shrank by 0.8 percent in the first quarter, the official data agency Istat said Monday confirming an earlier estimate that showed the country’s recession deepening.

Istat also revised down to 1.4 percent the contraction on a 12-month comparison compared to an earlier estimate of 1.3 percent.

Italy’s economy has been shrinking since the third quarter of 2011.

The main reasons for the first-quarter contraction were a 0.6-percent fall in consumption from the previous quarter and a 3.6-percent drop in investment.

Imports also fell 3.6 percent and exports went down 0.6 percent, Istat said. The economy has been hit by a series of draconian austerity plans and a rise in unemployment to over 10 percent.

Istat has forecast the economy will continue to shrink in the second quarter before recovering in the second half of the year. The government is forecasting an overall contraction of 1.2 percent this year but the International Monetary Fund predicts it will shrink 1.9 percent.

Separately, Spain’s grinding economic misery will get worse this year, despite the country’s request for a European financial lifeline of up to $125 billion to save its banks, Prime Minister Mariano Rajoy said Sunday.
A day after the country conceded it needed outside help following months of denying it would seek assistance, Rajoy said more Spaniards would lose their jobs in a country where one out of every four are already unemployed.

"This year is going to be a bad one," Rajoy said Sunday in his first comments about the rescue since it was announced the previous evening by his economy minister.

The conservative prime minister added that the economy, stuck in its second recession in three years, will still contract the previously predicted 1.7 percent in 2012, even with the help. Spain Saturday became the fourth - and largest - of the 17 countries that use Europe’s common currency to request a bailout.

This is a big blow to a nation that a few years ago took pride as the continent’s economic superstar only to see it become the hot spot in the eurozone debt crisis. Its economy is the eurozone’s fourth largest after Germany, France, and Italy.

Although Spain has not yet said how much money it would seek, the Eurogroup - finance ministers of the 17-country eurozone, of which Spain is a member – said in a statement Saturday that it was prepared to lend up to €100 billion.

The funds, which will come from one of 3 pools of emergency financing that eurozone countries can access, will be sent to Spanish government’s Fund for Orderly Bank Restructuring, which would then use the money to strengthen the country’s teetering banks. – AFP