ROME (Reuters) - Italy revised up its gross domestic product for the first quarter of 2014 to show a flat quarterly reading, data showed on Wednesday, indicating the euro zone's third-largest economy is technically not in recession.
ISTAT had previously reported a fall in output of 0.1 percent for the first quarter from the previous period, and a 0.2 percent decline in the second quarter, which was left unrevised. Two consecutive quarters of contraction technically constitute a recession.
The revision was due to methodological changes being conducted across the European Union which are expected to raise this year's GDP, and give Prime Minister Matteo Renzi's government more leeway to keep the deficit below the EU's 3 percent limit.
National statistics agency ISTAT said GDP fell 0.3 percent year-on-year in the first three months of 2014, compared with a 0.4 percent fall previously reported.
In the second quarter, the agency revised down a previously reported drop of 0.2 percent year-on-year to a 0.3 percent decline.
The new system, known as SEC 2010, changes the way that spending on research and armaments is classified in GDP calculations and also includes revenue from illegal activities related to drug trafficking and prostitution.
In Italy, the revisions also increase the size of the public sector by including numerous bodies which were previously excluded, and strip out the impact of debt swap operations carried out by the Treasury.
A revision to 2013 GDP carried out in September to comply with the new system raised output and as a result the budget deficit and public debt-to-GDP ratios were lowered.
(Reporting by Isla Binnie)