Italy plunged into recession at the start of this year, official figures showed on Thursday, taking the gloss off an unexpectedly strong performance by Germany and casting a fresh shadow over the eurozone's economic outlook.

Italian gross domestic product fell by 0.5 per cent in the first quarter, after a 0.4 per cent drop in the previous three months. A recession is usually defined as two successive negative quarters.

The abrupt decline is a significant setback for Silvio Berlusconi, Italy's prime minister, and his chances of winning re-election in the national poll due by May 2006. Mr Berlusconi would like to cut taxes before the general election.

Italy's recession is one of the deepest by a member of the eurozone since the launch of the euro in 1999. It comes amid fears that the region as a whole is slowing further in the second quarter, hit by high oil prices and the euro's appreciation late last year.

Joaquin Almunia, European monetary affairs commissioner, told the Financial Times that he was “moderately optimistic” about the outlook for the eurozone economy for the rest of 2005, especially if oil prices remained at current levels.

But he admitted: “We have a problem of confidence.”

Italy's data came as the European Central Bank sounded a warning about persistent differences in economic growth across the eurozone, although its monthly bulletin put the emphasis on structural reform by national governments to smooth out variations.

Overall eurozone GDP rose by 0.5 per cent in the first quarter, after just 0.2 per cent in the previous three months. The Netherlands also fell into recession in the first quarter, while France, which releases GDP figures next week, is thought to have experienced a substantial slowdown.

By contrast, Spain is thought to have grown by as much as 0.8 per cent.

Germany saw an unexpectedly strong rise of 1 per cent its fastest quarterly rise for four years.

Although Germany seemed to have passed the “sick man of Europe” title to Italy, economists warned its growth rate was almost certainly a blip after a particularly weak previous quarter.

Germany's statistical office said the first quarter improvement was “exclusively based on exports”.

But recent figures have shown German manufacturing output and exports have remained robust. In Italy, Mr Berlusconi sought to call the statistics into question.

“There was Easter in March; people can't go to the seaside and expect GDP to grow,” he was reported by Reuters as saying.

But in Brussels, Mr Almunia warned that Italy had “some important structural problems leading to low growth potential”, including the exposure of exporters to Asian competition.

Mr Almunia will soon exacerbate Mr Berlusconi's political problems by demanding that he take action to bring down the country's rising budget deficit.

The commissioner believes Italy broke the stability and growth pact's deficit ceiling of 3 per cent of GDP in 2004 and will do so again in 2005, leaving him no alternative but to launch proceedings against Rome.

Mr Almunia said such action would be “an opportunity to show that the stability and growth pact still exists” after its rules were made more flexible in March. He expects the issue to be put to finance ministers in July.