Output shrank 0.2 per cent in the three months through December, following a 0.1 per cent decline in the previous quarter, statistics agency Istat said Thursday in a preliminary report.
Italy's Economy Minister Giovanni Tria on Thursday said the country's response its decline into recession in the second half of a year ago must be to increase public investment, adding that all European Union countries should seek to bolster growth.
The government had until now brushed aside fears that the country was headed for a recession, adding that key measures contained in their budget would help boost the economy this year.
"We expect GDP to expand by 0.5 percent in 2019, and this underpins our expectation Italy's GDP will return to modestly positive quarterly growth during the year", UniCredit economist Loredana Federico said after the Q4 figures.
While Prime Minister Giuseppe Conte insisted on Thursday that the economy would bounce back this year, other worrying economic signs, such as a manufacturing slump and the slowdown in Germany, suggest growth may not come back as fast as he predicts.
Italy's budget for 2019, which was finally approved by the European Union in December after Rome and Brussels reached a compromise on expenditure, includes huge tax cuts for self-employed workers and a national "citizens' wage" of 780 euros (890 US dollars) per month for 1.7 million poor households.
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Italy is Europe´s second largest manufacturer and is now the only European Union member in recession, although growth in export powerhouse Germany also fell in 2018. He said that could happen "particularly if euro zone growth continues to disappoint".
The year-on-year growth rate of 1.2 per cent was the weakest in five years. "Italy is going to have to face up to some real problems".
But critics say the coalition has aggravated the situation with their stand-off with Brussels over fiscal policy, creating a loss of market confidence which pushed up Italy's borrowing costs and hurt the economy.
"The response can not but be to accelerate the public investment programme foreseen by the government", Tria said in a statement. "The ISTAT data show something fundamental", 5-Star Movement (M5S) leader Di Maio said.
The jobless rates fell slightly in Italy and Spain, which still have the highest unemployment levels in the eurozone after Greece.
The Italian economy suffered a harsh recession in 2012-13 and has enjoyed only slow growth since then.