Italian economy predicted to contract

<p>The Italian economy could shrink by 1.4 per cent.</p>

Italy's economy will shrink by 1.4 per cent over the course of the year, according to a new forecast released by Istat.

The national statistics agency predicts that the country will experience 0.7 per cent economic growth in 2014, but noted that it expects unemployment will reach a record high of 12.3 per cent at some point next year.

It blamed "tight credit conditions and persistent negative economic sentiment" for the downward revision in growth expectations, adding: "Private consumption is expected to fall further, reflecting a decline in households' purchasing power and rising unemployment."

Recent economic data has pointed to a slowdown in growth in Germany and France, while the European Central Bank cut interest rates from 0.75 per cent to 0.5 per cent – a new record low for Europe – earlier in the month.

But there has been positive economic news from the UK, which recorded growth of 0.3 per cent in the first quarter of the year to avoid slipping into a triple-dip recession.

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