Italy’s economy contracted in the second quarter as a drop in investments dragged the country back into recession, with falling consumer prices suggesting it also risked being sucked into a deflationary spiral.

The figures underscore the difficulties facing Prime Minister Matteo Renzi, aimed at reviving the eurozone’s third-largest economy after more than a decade of stagnation.

Gross domestic product fell 0.2 per cent quarter-on-quarter, national statistics bureau ISTAT said, confirming a previous estimate. It dropped 0.2 per cent year-on-year, rounded up from a preliminary 0.3 per cent.

Italy emerged from a two-year recession in the fourth quarter of last year with 0.1 per cent growth, only to contract again in 2014 when the recovery had been expected to take hold, increasing pressure on Renzi to take decisive action.

“We’re still losing 1,000 jobs a day,” Luigi Angeletti, head of the UIL union said after a separate piece of data showed the unemployment rate for July climbed to 12.6 per cent, with 69,000 added to the jobless rolls from the previous month.

“The real economy needs a government which does something, instead of just pretending to do something,” he said.

Consumer prices fell in August from a year earlier, preliminary data showed, confirming fears that Italy risks sinking into sustained period of outright deflation that could further depress demand.

The minus 0.2 per cent reading in the EU-adjusted inflation figure was the lowest since the series began in 2002, and the 0.1 per cent drop in national NIC prices the first instance of annual deflation in that measure since 1959, an ISTAT official said.