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Italy Industry Output Dives, Dashing Recovery Hopes

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Italian industrial output fell more than expected in October after stabilizing in the third quarter, suggesting the prolonged recession in the euro zone's third-largest economy is set to deepen in the final months of 2012.

Yet more evidence of recession is sure to be a key factor in the election campaign now getting underway in Italy following Saturday's announcement by Prime Minister Mario Monti that he will resign in the next few weeks.

Output sank 1.1 percent month-on-month after an upwardly revised 1.3 percent fall in September. The figure missed all forecasts in a Reuters survey of analysts that spanned -0.6 percent and 0.5 percent and averaged -0.2 percent.

Production fell heavily across all industrial sectors, particularly in durable consumer goods, national statistics office ISTAT said.

Analysts said the weak figures suggested output would fall again in the fourth quarter at a rate of about 2 percent, as seen in the first two quarters of the year, after stabilizing in the third quarter.

That in turn points to a renewed worsening of the recession that began in the middle of last year.

"Gross domestic product in the fourth quarter could come close to the drops seen in the first half of the year," Intesa Sanpaolo economist Paolo Mameli said, expecting an economic contraction of around 0.6 or 0.7 percent in the fourth quarter.

"That means the starting point of 2013 is going to be very weak," he said. Final data on Monday showed GDP fell 0.2 percent in the third quarter of the year compared to the second and was down 2.4 percent annually, confirming a preliminary estimate.

ISTAT expects the economy will contract by 2.3 percent this year and by 0.5 percent in 2013.

Italy's slump has been accentuated by austerity measures adopted by Monti's technocrat government to fight a debt crisis. The tax hikes and spending cuts have squeezed Italians grappling with stagnant wages and rising unemployment.

In a sign of growing discontent, a group of workers at the statistics agency protested on Monday against the conditions of employees stuck on temporary contracts, shouting and banging on the doors of the press room as the latest data was released.

Monti said on Saturday he would resign once next year's budget is approved, two days after the party of former premier Silvio Berlusconi withdrew its parliamentary support for the government.

The move is likely to bring an expected national election forward by a month to February.

The fall in Italian output mirrored a much steeper than forecast 2.6 percent monthly slump in production in Germany, Europe's largest economy, and a 0.7 percent fall in France.

On a work day adjusted year-on-year basis, output in Italy sank 6.2 percent in October after a 5 percent decline in September.