It suffered because of a slump in investment, and a sharp fall in exports as the euro rose in value.

The national statistics office, Istat, said the economy contracted by 0.1% from the last three months of 2002 - the first quarterly fall since 2001.

Istat was confirming preliminary figures released in May.

It said investment fell 5% from the previous quarter, while exports were down 3.5%.

Imports also dropped, but their value was almost equivalent to exports.

In the previous quarter exports exceeded imports by 2bn euros (£1.4bn; $2.3bn) and Italy's economy grew by 0.4%.

Stagnation

The government-funded economic institute, ISAE, has predicted that growth will return in the three months to the end of June.

And the government is forecasting growth this year of about 1%.

Over the past ten years, Italy has had one of the lowest annual growth rates in the European Union.

The euro zone economy as a whole stagnated in the first quarter.