Rome - Italy's economy has contracted for the second consecutive quarter, marking a recession that comes in the wake of the international credit crunch, the country's central statistics office said Friday.

Gross domestic product in the third quarter in Italy - the eurozone's third largest economy - shrank 0.5 per cent from the second quarter, when it contracted 0.4 per cent, the Rome-based Istat said.

The third quarter fell 0.9 per cent compared to the same period in 2007.

Italy follows Germany, Europe's largest economy, in posting two consecutive quarters of contraction - the technical definition of a recession.

Italy's business confidence dropped to the lowest in almost 15 years in October as the credit crisis deepened. Italy's benchmark S&P/MIB index has plunged 47 per cent this year.

Italy's economy is set to stagnate this year and 2009, making it the worst-performer after Ireland among the nations sharing the euro, the European Commission forecast on November 3. (dpa)