Italy slips deeper into recession

(AP) MILAN - Italy's recession deepened in the April-June period, when the economy shrank for the fourth quarter in a row, official government statistics showed Tuesday.

The economy contracted by 0.7 percent in the second quarter compared with the previous three months, more than the 0.6 percent drop expected by economists surveyed by FactSet, a financial data provider.

The ISTAT statistics agency said activity fell in all sectors - industry, services and agriculture.

The government, which is trying to reduce debt, has made spending cuts and tax increases that are hurting businesses and households. Fear that Italy will need a sovereign bailout if its borrowing rates rise further has created economic uncertainty.

Analysts at UniCredit bank, which had expected only a 0.5 percent drop in GDP, said it was premature to change their projection for a 1.9 percent annual contraction in the economy, even though business surveys are showing no improvements are likely in the third quarter.

Compared with the same period of 2011, the economy shrank by 2.5 percent - the worst year-on-year contraction since the fourth quarter of 2009, when the economy shrank by 3.5 percent. Car production alone was down 22.5 percent in June compared with a year earlier.

Premier Mario Monti has recently been courting other European leaders seeking permission to slow down the pace of Italy's promised budget cuts, which tend to hurt the economy. Experts say growth is a key element in bringing down the country's high public debt, which stands at 123 percent of GDP.

The government expects the economy will contract by 1.2 percent this year.