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Italy recession sparks fears of EU slowdown

MILAN--Italy fell back into recession Wednesday in a surprise setback that highlighted worries that the eurozone's fragile recovery, burdened by the Ukraine crisis, may be flagging.

The Italian economy shrank unexpectedly by 0.2 percent in the second quarter, dragging the country back into recession in a sharp blow for Prime Minister Matteo Renzi, who has told Europe Italy plans to lead by example on growth.

Even powerhouse Germany appeared to suffer from increased anxiety regarding Ukraine as figures showed its industrial orders slid steeply in June, sparking concerns that geopolitical tensions are hurting Europe.

Investors were spooked further by NATO's accusations that Russia has sent more troops to the Ukraine border and could be planning to use the pretext of a humanitarian mission to invade eastern Ukraine.

Italian, Spanish and Greek 10-year government bonds fell, while Europe's stock markets dropped, with Portugal leading the way.

Italy's contraction, which follows on the heels of a fall in the first quarter, was worse than analysts expected, leaving the eurozone's third-largest economy embarrassingly behind its EU neighbors on the slippery road to recovery.

The country was hit hard by the eurozone debt crisis and only emerged from its worst recession since World War II last year.

The youthful Renzi, who had hoped to persuade Germany to ease budget rigor for troubled countries by showing off the power of reforms in Italy, shrugged off the downturn and swore he would “go forwards with even more determination.”

“Without uncertainties, without fear, without delays. The reform process is underway and it's a one-way street,” he said.

The official Istat data agency said in an initial estimate that Italy's gross domestic product had shrunk by 0.3 percent from the same period last year, the lowest second-quarter level for 14 years.

Explaining the drop, Istat said poor exports had dragged on growth, along with weakness in industry, services and agriculture.

Industrial production rose 0.9 percent month-on-month in June but contracted by 0.4 percent in the second quarter, mainly due to a lapse in May, separate data showed Wednesday.

Obstacles to Growth

Appeals from France — the eurozone's second-biggest economy — for Germany to do more to help promote economic growth in Europe were rebutted Wednesday, when a government spokesman said Berlin was already pulling its weight.

Key data for the French economy suggest it too is lagging behind the recovery of other EU members. But while Paris's debt stands at around 91 percent of GDP, Rome's is forecast by analysts to rise to over 135 percent of GDP in 2014.

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