Italy has officially slipped into recession, and Europe as a whole is essentially at an economic standstill, raising anxieties that the world is on the verge of a significant slowdown.
The timing could not be worse. The lousy performance of the Italian economy, reported on Thursday, is likely to aggravate relations between the European Commission and Italy’s populist government, which has pursued spending policies widely regarded as irresponsible. Leaders on the Continent are already dealing with Britain’s messy exit from the European Union.
At the same time, China’s economy is slowing, in part because of President Trump’s trade war. The data published Thursday by official statistics agencies provided a glimpse of just how intertwined China and Europe have become, and how vulnerable that leaves the eurozone. This weakness, in turn, adds to risks facing the United States, which is Europe’s top trading partner.
In Italy, the government’s debt load is one of the highest in the world. A prolonged economic slump would significantly add to the risk of default, with global repercussions.
The European Central Bank has in the past come to the rescue of Europe, and Italy in particular, but it has less scope to do so now. The bank is scaling back its purchases of government bonds, a stimulus measure that helped ensure there were buyers for Italian government debt.
“We have weaker economic momentum and at the same time the E.C.B. is getting out of the market,” said Katharina Utermöhl, an economist at German insurer Allianz. “That means there is less room for policy mistakes.”
Giuseppe Conte, the Italian prime minister, hardly reassured his European partners when he said Thursday that the economic setback had nothing to do with his government.
“I am not worried in the least,” Mr. Conte told reporters, calling the recession “temporary” and blaming a tariff war between the United States and China that had hurt Italy’s No. 1 trading partner, Germany, and “will find us all losers.”
The Italian economy shrank 0.2 percent in the fourth quarter of 2018 compared with the third quarter, Istat, the Italian statistics agency, said. It was the second quarter in a row of declining output and that, by one common definition, means a recession. It is Italy’s third since 2008.
Growth in the eurozone itself was just 0.2 percent in the fourth quarter compared with the third quarter, the European Union statistics agency said. That rate matched the previous quarter’s, and anemic as it is, it might have been worse but for Spain and France. Spain’s economy grew at an unexpectedly strong clip, rising 0.7 percent in the fourth quarter compared with the third. And in France, where the government has been struggling with mass public protests over economic duress, growth hit 0.3 percent.
Economists agree with Mr. Conte on one point — that China’s woes are weighing on Europe.
During the last decade, Europe profited from China’s push to modernize its infrastructure. China equals the United States as a customer for heavy-duty German machinery, like cranes, textile machines or equipment for steel mills, and companies like Volkswagen have made the country a priority.
“It’s our biggest market,” said Ralph Wiechers, chief economist at the Mechanical Engineering Industry Association, which represents German machine manufacturers. “We still have growth, but we are noticing a lack of momentum.”
Critics of the Italian government blame its economic policies at home for its performance. Economists say the populist alliance has sowed uncertainty, prompting many Italians to spend less. A decline in consumer spending was a major culprit in the economy’s setback.
Carlo Cottarelli, a former director of the International Monetary Fund who led a spending review of the previous Italian government, reviewed the statistics on Thursday and said the alliance, in power since June, was responsible for Italy’s slide. “This recession here, it can’t be the fault of the previous government,” he told a radio station in Padua.
After a protracted fight last year with Brussels, Italy’s government increased spending for broader welfare programs and generous pensions. The government, pulling together its first budget, assured Europe that its growth would be much higher than estimated by experts — although it blocked major infrastructure projects that could stimulate growth.
Italian business leaders have become bolder in their criticism, as seen Wednesday when Mr. Conte hinted to a powerful business association in the northern Lombardy region that the new economic figures might disappoint.
Carlo Bonomi, the group’s president, implored the prime minister to stop governing from the “easy street” of electoral politics, and to introduce responsible economic policies. “Stop this drift towards violence and hate, also rhetorical, that is starting to rend the fabric of Italian society,” Mr. Bonomi said, in remarks broadcast on television news and in press reports.
After the statistics of a new recession became official, the criticism spread.
“We need to immediately open the construction sites,” Vincenzo Boccia, president of the Confindustria business association, told reporters on Thursday. He added: “We need to react as soon as possible, so that we can compensate the external effect from the global economy.”
Some analysts said that economic pain could be the only way to break the spell cast by Italian populists. But others warned that a struggling economy helped set the conditions that fueled the extreme parties’ rise.
On Thursday, the Italian government wasted no time in blaming someone else, in this case, its predecessors.
“Today’s data from Istat show a fundamental thing, that those who were in government before us lied to us,” said Luigi Di Maio, the political leader of the Five Star Movement and Italy’s economic development minister, speaking at a party event. “They never got us out of the crisis.”
He predicted that government initiatives, including an expensive unemployment program, would soon increase employment.
Mr. Conte was similarly sanguine. “We need to focus on relaunching our economy and that will surely happen in 2019,” he said. “This will be realized mostly in the second semester of 2019, and there is a lot of enthusiasm about that.”
Author: JACK EWING and JASON HOROWITZ