Severe challenges ahead

As the financial crisis swept the world, Italy could not escape. It entered a recession -- defined as two quarters of negative growth in a row -- in the third quarter of last year.

Italy suffered a 1 percent GDP contraction in 2008, which was worse than the 0.6 percent contraction the government had predicted, and the worst since 1975, the Italian Statistics Agency (Istat) said last week.

The contraction was largely due to a 3.7 percent fall in exports, a three percent fall in investment and a 0.5 percent fall in consumption.

The record one-percent GDP drop in 2008 has boosted the country's budget deficit and lowered its primary surplus, Istat said.

The country's deficit for 2008 is expected to rise to 2.7 percent of GDP, from 2.6 percent forecast by the government. Meanwhile, its primary surplus declined to 2.5 percent of GDP in 2008, from 3.5 percent in 2007, Istat said.

Amid the economic crisis, Italians have had to change their lifestyles. According to a report "Italy 2009" by think tank Eurispes, today 78 percent of Italians have changed their lifestyles, cutting expenditure on such things as gifts, restaurants, entertainment and holidays.

Some people thought that for Italy, the crisis may not be as destructive as it would be for other nations.

"You'll see that we are raising our position in this crisis, as other nations are going backwards faster," Italian Economy Minister Giulio Tremonti said in January.

However, as the "traditional" obstacles still exist, which could bring a worse impact to the country with the current international financial crisis, the outlook seems more bleak and obscure to some observers.

On Tuesday, the Organization for Economic Cooperation and Development (OECD) said the situation in Italy this year and the next would be "much worse" than it had previously forecasted, and the economic data this year may be the steepest among its 30 members.

Italy would not come out of its current recession until "sometime" in 2010, the OECD said.

The International Monetary Fund also agreed that Italy faced a difficult time. In its country report released earlier this year, the IMF said the possibility of Italy's economic recession stretching into 2010 "cannot be ruled out."

"In line with the rest of the euro area, Italy is being severely affected by the worsening economic environment", the IMF said.