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Italy's economy contracts unexpectedly in Q4 2019, casting shadow over 2020 outlook

Gavin Jones

outlook@

* Q4 GDP -0.3% q/q, 0.0% y/y, below forecasts

* Q3 and Q2 y/y growth revised up

* 2019 average growth rate 0.2%

ROME, Jan 31 (Reuters) - Italy's economy unexpected posted a steep contraction in the fourth quarter of last year due to weak domestic demand, data showed on Friday, hitting the outlook for 2020. Gross domestic product in the euro zone's third largest economy fell a quarterly 0.3% between October and December, following an unrevised 0.1% rise in the third quarter, national statistics bureau ISTAT reported. The 0.3% drop was the steepest decline since the first quarter of 2013. On a year-on-year basis, GDP was flat in the fourth quarter, following an upwardly revised 0.5% rise in the third. The Q4 data was much weaker than expected. A Reuters survey of 27 analysts had pointed to a 0.1% quarter-on-quarter rise, up 0.3% year-on-year. The third quarter data was revised to +0.1% quarter-on-quarter, +0.5% year-on-year from a previously reported +0.1% q/q, +0.3% y/y. Over the whole of 2019, growth came in at a preliminary 0.2%, slightly beating the government's most recent official forecast of 0.1%. That followed a 0.8% rate in 2018. ISTAT said the GDP slump in the fourth quarter was due to a fall in domestic demand, which had been only partially offset by a positive contribution from trade flows. It gave no numerical breakdown of components with its preliminary estimate, but said industry and agriculture had contracted, while services had been broadly stagnant. The International Monetary Fund said this week that Italy's growth would be the weakest in the European Union over the next few years. ISTAT said so-called called "acquired growth" at the end of last year stood at -0.2%. This means that if GDP were to be flat quarter-on-quarter in each quarter of 2020, over the whole of the year it would still be down 0.2% from 2019. This year the government of the anti-establishment 5-Star Movement and the left-wing Democratic Party forecasts a growth rate of 0.6%. The IMF this week forecast 0.5%.

ISTAT gave the following details:

Q4 2019 Q3 2019 Q2 2019Q/Q (pct change) -0.3 0.1 0.1Y/Y (pct change) 0.0 0.5r 0.2r

r=revised

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