Italy’s recovery in doubt as economy contracts in Q4

The euro zone’s woes appear to be far from over today after the area’s third largest economy, Italy, unexpectedly contracted by 0.2% in the final three months of 2009, causing concern over its economic recovery.

The news comes shortly after Germany, which is the euro zone‘s largest economy, said GDP remained flat in the three month period, with growth unchanged compared with the third quarter.

It has also emerged that the Spanish economy is still in recession after the economy contracted by 0.1% in the fourth quarter of 2009 - the seventh consecutive quarter of contraction.

Spain is now the last major economy still in recession. The country has been hit by a severe slump within the construction industry, which has led to a significant amount of job losses.

Spain’s unemployment rate currently stands at 19.5%, against a rate of 10% within the euro zone as a whole.

Meanwhile, the euro zone’s second largest economy, France, posted a 0.6% rise in GDP for the fourth quarter of 2009 - beating analysts expectations.

The GDP results come as the Greek Government is grappling with a severe debt crisis which has weakened the value of the euro and driven Government bond yields higher.

Commenting on the GDP figures, ING bank economist Carsten Brzeski, said: “The euro zone growth engine has taken a break in the fourth quarter but it should return soon. Today’s numbers, however, were a good reminder that recoveries can not only be bumpy but also capricious.”

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