G7 host Italy dives deep into recession - Protests as Berlusconi hosts G7 talks

Italy, Europe's fourth-biggest economy, is host to the G7 talks on fighting the spiralling crisis which begins with a working dinner Friday evening.

The new official data showed that output fell to the lowest level since 1980 in the fourth quarter of 2008, at 1.8 percent down from activity in the previous quarter.

This was after shrinking by a downwardly revised 0.6 percent in the third quarter.

The worse-than-expected data -- economists surveyed by Dow Jones Newswires had forecast a 1.3-percent drop -- came as tens of thousands of people thronged a Rome square to protest against the economic crisis under the slogan "Not On Our Backs."

The biggest trade union, CGIL, called the protest and a general strike to slam the government's response to the financial crisis, saying it exposed already vulnerable workers to further risk.

Protesters -- mainly civil servants and metalworkers -- came to Rome from all over Italy, notably from the impoverished south of the country, but only some nine percent of the civil service workforce answered the strike call, according to the civil service department.

"We should not have to pay for the mistakes of others, the banks the traders, those who profit off our backs," said Juan Luis Finkbein, a metalworker from northern Brescia.

"I have no desire to go on temporary layoff, but the problem is that the crisis looks like it will affect every sector," Finkbein, who emigrated to Italy from Uruguay 10 years ago, told AFP.

Problems at auto giant Fiat have been emblematic of the turndown, with sales in Italy falling 20 percent in the fourth quarter of 2008, prompting the company to call a string of temporary layoffs.

Conservative Prime Minister Silvio Berlusconi, reacting to the new recession figures on Friday, said the "dimensions of the crisis are not yet fully defined," adding that "we should view it, and we do view it, with concern."

In November, the Italian government launched a package of five billion euros (6.5 billion dollars) for 2009 to cope with the economic slump, but the opposition, unions and employers all criticised the plan as too modest to have any real impact.

Last week, Berlusconi announced new measures worth two billion euros to boost the economy and help the auto industry, while tying the aid to keeping factories at home.

Italian Finance Minister Giulio Tremonti initially suggested that Italy was safe from the crippling effects of the US subprime crisis, which snared mostly American and other European banks, particularly British ones.

And last month he said the capacity of the Italian economy to bounce back should not be underestimated.

"One should be suspicious of GDP (gross domestic product) figures. Not only do they not include the informal economy, but, above all, a large part of the activity of our companies takes place outside of our borders," he told the business daily Il Sole-24 Ore.

But last week the International Monetary Fund warned that Italy's recession could stretch into 2010 "in line with the rest of the euro area, ... although its financial sector has remained relatively resilient."

Alex Foti, an activist with EuroMayDay, a political day of action against precarity mostly in western Europe, said: "There is a shift from precarity to unemployment in Italy and the rest of Europe."

Segments of society he called "outsiders -- young people, women, immigrants" will be the first to lose their jobs, he told AFP, adding: "The great recession is going to make it worse."