ROME, Aug 10: Italy's economy shrank in the second quarter, nudging up 0.1 per cent compared with an adjusted growth figure of 0.3 per cent in the first quarter, officials said on Friday.

Year-on-year growth reached 1.8 per cent in the second quarter, compared with 2.3 per cent for the same period last year, the Italian National Statistical Institute (ISTAT) said in a report.

The second-quarter gross domestic product (GDP) growth figure reflects “a rise in the value of services and a decrease in agriculture and industry,” the report said.

Analysts at Thomson Financial had expected a second-quarter increase of 0.5 per cent and 2.2 per cent for the year.

“The slowing is more than expected, but it is unsurprising and should not cause concern,” said Chiara Corsa, an economist at Unicredit bank, attributing the result to higher oil prices and the strong euro.

She added however that the bank's outlook remained “optimistic,” forecasting stronger consumer activity in the second semester.

The Organisation for Economic Cooperation and Development's chief statistician Enrico Giovannini agreed, saying the weaker than expected growth could be turned around over the year.

“Italy still has an economy capable of growing beyond 2.0 per cent,” he told the Radiocor news agency. “There are signs of slowing, a little weakness for the next quarters, but the economy is progressing.” Other economists say that in current conditions the government cannot reach the 2.0 per cent growth target for 2007.

ISTAT's figures are adjusted to take public holidays into account. The first quarter had two more holidays than the second, which in turn had one more working day than the same period in 2006.—AFP