ROME:THE ITALIAN economy contracted in the third quarter, signalling the country may have entered its fifth recession since 2001 as the government adopts austerity measures that will further weigh on growth.

Gross domestic product dropped 0.2 per cent from the second quarter, when it grew 0.3 per cent, Rome-based national statistics institute Istat said in its final GDP report.

It was the first contraction since the final three months of 2009 and matched the median forecast for a 0.2 per cent contraction in a survey of 23 economists.

Italian prime minister Mario Monti’s government faces a final vote as soon as today on its €30 billion emergency budget plan that aims to shield Italy from the region’s debt crisis and bring down record borrowing costs. Mr Monti has said the measures, including a freeze on some pensions, reinstatement of the main property tax and higher gasoline prices, will hurt growth in the coming quarters, while making Italy more competitive.

“The problem is not about the measures already decided; it is about the implementation of those measures and how many social hurdles the government will find from unions and people in general, and also how much economic growth will be lost,” said Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London.

Confindustria, the Italian employers’ lobby, forecast last week that GDP, which has lagged the euro-region average for more than a decade, will contract until the second half of next year. The group predicted that the euro area’s third-largest economy will shrink 1.6 per cent in 2012.

Recent data offers evidence of the country’s economic decline. Industrial orders dropped 1.6 per cent in October from the previous month, while industrial production fell 0.9 per cent over the same period, a December 20th report showed. Unemployment jumped to a 17-month high of 8.5 per cent, with youth unemployment at 29 per cent. – (Bloomberg)