Sanctions on Russia pull down factory orders in Germany as Italy relapses into recession

Italy unexpectedly relapsed into recession and German factory orders dropped the most since 2011 as global growth slowed and tensions increased with Russia over Ukraine jeopardising the euro area's recovery, Bloomberg reported.

Italy's economy shrank 0.2 per cent in the second quarter after a contraction of 0.1 per cent in the previous three months. German orders fell 3.2 per cent in June from May.

Both reports came in worse than forecast by economists in separate Bloomberg News surveys.

The figures come two months after the European Central Bank announced an unprecedented package of stimulus measures which include a negative deposit rate as also targeted loans to banks.

Those policies would take time to have an impact, leaving the economy at risk as war in Ukraine and sanctions against Russia by the US and EU undermined business and investor confidence.

The Central Bank's August interest-rate meeting is set to open later in the day on Thursday.

Bloomberg quoted Joerg Kraeme, chief economist at Commerzbank AG in Frankfurt as saying today's data was a serious reason for concern and confirmed that the euro-area recovery was still sluggish at best.

He added evidence was mounting that risks to the ECB's economic outlook were on the downside.

Meanwhile, MarketWatch reported that for US investors who piled into European equities last year, Italy's unexpected second-quarter contraction raised the question of whether the euro zone itself had come out of recession.

While Italy's economic performance was being viewed as the third dip into recession territory since 2007, in reality, the Italian economy had managed to grow in one paltry quarter of growth in the past three years.

According to commentators, while Europe's recession might or might not simply be in the midst of a ''long pause,'' the euro-zone debt crisis remained dormant.

They added, growth troubles for Italy would only make it harder for the country, which stood as the key battleground in the region's debt crisis, to get its fiscal house in order.