Italy’s debt rose last year to 120.1 per cent of output but the annual deficit fell to 3.9 per cent, as the economy entered recession, official data showed yesterday.

Public debt was previously at 118.7 per cent of gross domestic product in 2010, the Istat data agency said, adding that the Italian economy grew 0.4 per cent overall in 2011, even though it contracted in the last two quarters of the year.

The Italian economy – the eurozone’s third-biggest – has been under heavy pressure from several austerity plans adopted since 2010 in a bid to rein in public finances and reassure jittery financial markets.

The last austerity budget should restore a balanced budget by 2013.

The economy contracted by 0.3 per cent in the third quarter and by 0.7 per cent in the fourth quarter. The overall growth of 0.4 per cent fell below the government’s expectation of 0.6 per cent growth last year.

A former European Commissioner and economics professor, Mario Monti took over as Prime Minister last November after his predecessor Silvio Berlusconi was forced out by a parliamentary revolt and a wave of panic on the markets.