ROME - ITALY is officially in recession as data on Wednesday confirmed that the eurozone's third largest economy shrank for a second consecutive quarter while falling industrial production further clouded the outlook.

The economy shrank 0.5 per cent in the third quarter, the national statistics agency announced, confirming figures released in mid-November.

It was the second consecutive quarter of falling output - the definition of recession - after the economy shrank 0.4 per cent in the April-June period.

Italy has not seen a recession since the fourth quarter of 2004 and the first quarter of 2005, when there were successive contractions of 0.2 per cent and 0.1 per cent.

Also Wednesday, ISTAT said industrial production fell 1.2 per cent in October, slightly better than analyst forecasts for a 1.3 per cent decline in surveys by Dow Jones Newswires.

The data show that Italy is 'in full recession and runs the risk of falling into a depressive spiral', said opposition economist Stefano Fassina.

Speaking to the ANSA news agency, Fassina urged a 'genuine' plan to combat the crisis while supporting workers, pensioners and the unemployed.

Union leader Guglielmo Epifani said the government should focus on relieving the tax burden on workers and pensioners.

'We need to proceed in an organic way, with more tax relief,' Epifani told reporters, saying it would be the central demand of a strike on Friday.

The government of conservative Prime Minister Silvio Berlusconi late last month moved to help families and businesses but has had little room for manoeuvre because of Italy's huge public debt.

The measures, worth about six billion euros (S$11.6 billion) for 2009, include bonuses for low-income families, tax deductions for businesses and more aid to companies forced to implement temporary layoffs.

Italy's economic woes fit in with a grim World Bank forecast for developed economies, which overall are expected to contract 0.1 per cent next year.

The Organisation for Economic Cooperation and Development has forecast that Italy's GDP will shrink 0.4 per cent this year and 1.0 per cent in 2009, while the International Monetary Fund (IMF) has predicted slumps of 0.2 per cent and 0.6 per cent, respectively.

Compared with a year earlier, October industrial production fell 6.9 per cent and for the first 10 months of the year it was down 2.9 per cent.

Economists had predicted a smaller year-on-year drop of 5.0 per cent.

Production in September shrank 2.6 per cent, ISTAT added, revising an earlier estimate of 2.1 per cent.

The contraction in October was attributed to lower output in intermediate goods, down 2.1 per cent, and investment goods, off 1.5 per cent.

Production of consumer goods rose 0.8 per cent.

ISTAT attributed the third-quarter outcome to lower overall national and overseas demand as well as a decrease in investments.

However, household consumption was slightly up at 0.1 per cent.

Value added in the agriculture sector fell 3.0 per cent, while that of industry, including construction, was down 1.4 per cent and services 0.2 per cent. -- AFP