Italy’s industrial production dropped by 2.5 per cent in January from December, the official data agency Istat said, after the economy entered recession in the second half of 2011.

The drop was far bigger than the 0.8 per cent that had been forecast by economists polled by Dow Jones Newswires and comes after a rise of 1.2 per cent seen in December, according to data adjusted for seasonal variations.

Industrial production was down five per cent over a 12-month period in January while economists had been expecting a decline of 0.5 per cent. The worst-affected sectors were the wood and paper industry which fell 7.1 per cent and the pharmaceutical industry which dropped 4.9 per cent.

The economy has been badly hit by a series of austerity measures adopted last year in a bid to calm a wave of panic on financial markets.

Italy’s economy shrank for two consecutive quarters – 0.2 per cent in the third quarter and 0.7 per cent in the fourth quarter – signalling the official start of a recession.

The government is forecasting a contraction of 0.4 per cent this year but the European Commission is expecting a fall of 1.3 per cent and the International Monetary Fund foresees a fall of 2.2 per cent.