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Italy's February output rise may signal end of recession - economists

Gavin Jones and Valentina Consiglio

* GDP fell slightly in last two quarters of 2018

* Industrial output jumped in February for second straight month

* Industrial output seen posting firm gain in Q1

* Services survey pointed to growth in February, March

ROME, April 10 (Reuters) - An unexpected rise in industrial output in February suggests Italy may already have exited the shallow recession it fell into over the second half of last year, economists said.

Industrial output rose 0.8 percent from the month before, national statistics bureau ISTAT reported earlier on Wednesday, compared with market expectations of a 0.8 percent drop.

The data consolidated a 1.9 percent surge in January and was the first time output had posted two consecutive monthly rises since June last year.

"The worst seems to be over and we have left recession behind us," Bologna-based think-tank Prometeia said in a research note.

It forecast that industrial output would rise a strong 1.5 percent in the first quarter from the previous three months, after declining in all four quarters of 2018.

Italian gross domestic product fell 0.1 percent in the third and fourth quarters of last year, putting the euro zone's third largest economy into what economists define as a "technical recession" of two straight quarters of declining GDP. The industrial output rebound this year, which followed four consecutive monthly falls from September to December, has been accompanied by positive data for the larger services sector.

The closely-watched IHS Markit purchasing managers index (PMI) showed services expanding in February and March, and last month's growth was the strongest since September.

Stripping out a decline in output of energy products in February, Barclays analyst Fabio Fois said manufacturing output in February had increased by 1.3 percent month-on-month, following a 1.4 percent gain in January.

"Together with encouraging PMIs, recent data support our forecast that Italy exited from technical recession in Q1," he said.

ISTAT will release preliminary first quarter GDP data on April 30.

The breakdown of fourth quarter data showed exports, consumer spending and investments all expanded, while the overall GDP decline was due to a sharp reduction in inventories, a component that can be particularly volatile.

Fois said he expected GDP to be flat in the first quarter, but with upside risks "especially if destocking pressures were to stabilize."

However, even if it emerges from recession Italy's economic prospects remain weak, as international trade tensions persist and growth slows in its main trading partner Germany.

Moreover, the slump at the end of last year has left a negative statistical carry-over for 2019, meaning that even firm quarterly growth rates would produce only a modest full-year expansion.

After a stagnant first quarter, Barclays sees growth of 0.1 percent in the second quarter and 0.2 percent in the third and fourth, leading to a full-year growth rate of zero.

On Tuesday the government of the anti-establishment 5-Star Movement and the right-wing League on Tuesday slashed its forecast for full-year growth to 0.2 percent from 1.0 percent. (Writing by Gavin Jones Editing by Frances Kerry)