Italy faces deeper recession in 2013, as yields rise in bond sales

Italy faces a deeper recession this year, the country's business lobby said Thursday, while rising yields in bond auctions indicated that debt servicing costs were rising for the eurozone's third-largest economy, dpa reported. Confindustria said it expected gross domestic product (GDP) to shrink by 1.9 per cent in 2013, and to expand by 0.5 per cent in 2014. In its previous estimate from December, it predicted negative growth of -1.1 per cent, followed by a 0.6-per-cent expansion. Italy is mired in the longest recession of its postwar history, started in mid-2011. The business lobby said the economy was close to bottoming out and would start growing again in the fourth quarter, by 0.2 per cent. Unemployment was projected to continue growing, to 12.2 per cent in 2013 and 12.6 per cent in the following year. In an attempt to revive the economy, the government of Prime Minister Enrico Letta on Wednesday introduced tax breaks for firms hiring young people and put off a planned increase in value added tax for three months. However, it was criticized for funding the measures by increasing the amount of money self-employed people and retailers have to pay upfront in their tax returns, and through a new tax on electronic cigarettes. "Parliament can find other (funding) solutions as long as we remain within the budget," Letta said in response to the attacks. Separately, the treasury said it sold 2.5 billion euros of 10-year bonds at a yield of 4.55 per cent, up from 4.14 per cent in May. It also completed an auction for 2.5 billion euros' worth of 5-year bond, at a yield of 3.47 per cent, up from May's 3.01 per cent.