(Bloomberg) -- Italy’s recession at the end of 2018 was almost unprecedented among the euro area’s major members and provided further evidence of the self-inflicted damage to the economy.
While mighty Germany only barely avoided the same fate, its weakness was largely due to one-time issues in the car industry. Italy’s two straight quarterly contractions highlight deeper issues; they also mean it’s the region’s only major economy to slip into recession alone. That amounts to a dubious distinction, as shown in the chart below.
Italy isn’t just economically isolated. Politically, the country has come under fire from other euro nations for its budget and tensions have been especially pronounced with neighboring France.
While growth in the euro area as a whole has weakened, Italy’s slowdown is particularly stark. In addition to two contractions, it’s predicted to barely grow this year, lagging well behind all 18 other nations in the currency zone. That’s an indictment of domestic policy, which has left the economy with huge debt, low growth and high unemployment.
“Italy’s technical recession appears to be an Italian problem thus far,” said Fabio Fois, a senior European economist at Barclays. In the past two euro-wide recessions “there were common reasons for the slowdown across member states.”
“This time around it seems that Italy got singled out on account of weakening external and domestic demand,” he said.
A small consolation for Italy is it's not the first among all euro nations to suffer recession in solitude. Greece suffered such a fate in the in the first half of 2010, though it was joined soon after by a number of other nations in the widespread downturn that coincided with the euro debt crisis.While there’s a chance other euro-area countries may suffer deeper slumps, or even recessions, this year, the baseline is for euro-area growth to recover heading into 2019. That may not be the case in Italy.
According to Fois, weaker consumption last year “cannot be attributed exclusively to temporary factors but is mainly due to slowing private consumption and investments owing to political instability.” He sees Italy’s economy stagnating this year.
Italy’s populist government led by Prime Minister Giuseppe Conte has repeatedly blamed slower global trade in recent quarters as the main reason for the export-reliant economy’s new slump. Sales of Italian goods abroad grew in 2018 by 3 percent, less than the 7.6-percent increase of the previous year.
Still many economists doubt that lagging international commerce sank the Italian economy. A plunge in December industrial sales and orders reported this week is the latest sign the recession may be continuing in this quarter.
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- Don’t Blame German Carmakers for Italy’s Industry Woes: Chart
--With assistance from Zoe Schneeweiss.
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