It's official: Italy's economy has slipped into recession

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Italy's economy contracted for two consecutive quarters.

• Output in Europe's fourth largest economy contracted 0.2% in the fourth quarter, on the heels of a 0.1% drop in the quarter before that.
• This means Italy is officially in recession, which is defined as two successive quarters of economic contraction.
• Istat cited a "decrease of value added in agriculture, forestry and fishing as well as in industry and a substantial stability in services."
• It's not just Italy. Industrial production throughout the whole of the eurozone slumped into the end of 2018.

It's official: Italy is in a recession.

Output in Europe's fourth largest economy contracted 0.2% in the fourth quarter, on the heels of a 0.1% drop in the quarter before that, statistics agency Istat said on Thursday. (A recession is defined as two consecutive quarters of negative growth.)

While the decline was bigger than expected, analysts were expecting a recession after a slew of data showed how the fundamentals of the Italian economy continue to struggle.

Read more: We now have conclusive proof that Europe is in an economic slump, and that two of its biggest economies are careering towards recession

Istat cited a "decrease of value added in agriculture, forestry and fishing as well as in industry and a substantial stability in services. From the demand side, there is a negative contribution by the domestic component (gross of change in inventories) and a positive one by the net export component."

Manufacturing was a warning sign

Italy's manufacturing sector has bombed out in recent months, with both survey and official data showing a continued contraction at the end of 2018.

Andrew Harker, an associate director at IHS Markit, which compiles PMI, said on January 2 that the manufacturing slump was a "worrying end to the year for Italian manufacturers, with firms continuing to struggle to secure new business."

"This is in marked contrast to the start of 2018, when the sector was experiencing strong growth," he added. "With business confidence at a six-year low, there appears little sense of optimism that the current soft patch will come to an end in the near future."

While the budget crisis that gripped Italy in the second half of 2018 seems to finally have a solution, the country's government is volatile and highly euroskeptic, so the country is teetering on the edge of yet another political crisis.

And it's not just Italy.

Industrial production throughout the whole of the eurozone slumped into the end of 2018, signalling that the single currency area's economy is still growing, but doing so at a glacial pace. Eurostat, the EU's statistical authority said in early January that industrial production fell by 1.7% between October and November last year.