Italy has slipped into recession for the third time since 2007, according to preliminary GDP data.
Schroders European economist Azad Zangana says the 0.2 per cent contraction in the second quarter was a shock as the consensus expected the country to begin growing once again.
Italian GDP fell by 0.1 per cent in the first quarter.
Zangana says industrial production output slipped by 0.4 per cent in the second quarter, while retail sales have remained steady.
The latest shrinking of Italian GDP puts it 9.1 per cent below its pre-financial crisis peak in the third quarter of 2007.
Zangana says while it has been difficult to distinguish between peripheral European states for some time, the difference of reform is beginning to show this year.
“What we have seen this year is the outperformance of countries that have implemented structural reforms and improved their competitiveness like Spain and Ireland,” he says.
“Meanwhile countries that have been slow and unwilling to embrace reforms, such as Italy and France, have been a drag on the wider eurozone economy.”
The poor economic figures are likely to come at political cost for the centre-left Italian prime minister who took office just six months ago, Zangana adds.
“The latest news will come as a severe blow for Matteo Renzi and his party, who have been slow to implement substantial macro reforms and instead been pre-occupied with politics.
“Meanwhile, neighbours Spain are putting Italy to shame, as early estimates there show growth of 0.7 per cent in the second quarter.”
Italian 10-year government bond yields are up 3 basis points to 2.78 per cent to today, according to Bloomberg.