By Isla Binnie
ROME (Reuters) - Italy's recession-hit economy slipped closer to outright deflation, according to data on Friday which showed the first annual fall in consumer prices in 55 years and piled pressure on Prime Minister Matteo Renzi as he readied a new reform plan.
Renzi has promised to work quickly to resuscitate the euro zone's third-largest economy after more than a decade of stagnation. He is due to unveil a package of measures to reform Italy's byzantine justice system and bureaucracy at a cabinet meeting later on Friday.
On Thursday, he unexpectedly took an ambitious schools reform plan off Friday's agenda, shortly before economic data underlined the depth of Italy's woes.
Statistics agency ISTAT confirmed preliminary data which showed that Italy fell into a triple-drip recession in the second quarter, as falling investments dragged gross domestic product (GDP) down 0.2 percent quarter-on-quarter with jobless rates rising and the downward pressure on prices continuing.
"For the last 20 years if not more our country has been living beyond its means and needs a jolt," Giorgio Squinzi, head of Italy's main business lobby Confindustria, said at a conference in the seaside town of Rimini.
"The people who govern us need to make decisions, even painful ones, that bring us to growth," Squinzi said.
A separate piece of preliminary data showed prices fell in August from a year earlier, confirming fears that Italy risks sinking into a sustained period of outright deflation that could further depress demand.
A reading of minus 0.2 percent in the EU-adjusted inflation figure was the lowest since the series began in 2002, and the 0.1 percent drop in national NIC prices the first sign of annual deflation in that measure since 1959, an ISTAT official said.
Italy emerged from a two-year recession in the fourth quarter of last year with 0.1 percent growth, only to contract again in 2014 when the recovery had been expected to take hold.
ISTAT said GDP dropped 0.2 percent annually in the second quarter of this year, rounded up from a preliminary 0.3 percent. It underlined that consumer spending made a positive contribution to output in the quarter, rising 0.2 percent after showing annual falls for 11 months in a row.
"LOSING 1,000 JOBS A DAY"
Italy has grown more slowly than any other country in the euro zone over the past decade and most economists expect it to post little or no growth this year. The government has admitted it must cut an annual forecast for 0.8 percent growth but it faces formidable obstacles to reviving the economy.
Italy's creaking justice system, which takes longer to resolve disputes and enforce contracts than just about any of its major competitors has long been seen as a major deterrent to foreign investors. Renzi has pledged to halve the backlog of civil cases and slash the time it takes for a trial.
The World Bank's most recent doing business survey, which put Italy in 65th place, noted that the average length of time it took to enforce contracts in Italy was 1,185 days, more than twice the OECD norm.
One of the priorities in the government's reform package is to tackle unemployment, which rose to 12.6 percent in July, data showed on Friday, after unexpectedly dropping in June.
Unemployment among the young, which Renzi has identified as a priority for his government, fell less than a percentage point to 42.9 percent in July after hitting a record high in June.
"We're still losing 1,000 jobs a day," Luigi Angeletti, head of the UIL union said after data showed 69,000 were added to the jobless rolls in July from the previous month.
"The real economy needs a government which does something, instead of just pretending to do something," he said.
Renzi, an avid user of Twitter, took to the site on Friday to promote his justice reform plans and "Unblock Italy" project, intended to encourage investment in public infrastructure and strengthen the economy without straining its fragile finances.
Domestic demand dragged on output in the quarter, as a 0.2 percent uptick in consumer spending was unable to counteract a 2.1 percent fall in investments. Exports increased 1.9 percent, but were outstripped by a 2 percent rise in imports.
(Additional reporting by Paolo Biondi in Rimini, editing by Ralph Boulton)