By Gavin Jones and Giuseppe Fonte
ROME (Reuters) -Italy's economy grew by 0.5% in the first quarter from the previous three months, preliminary data showed on Friday, a stronger recovery than expected after a slight contraction at the end of last year.
On a year-on-year basis, first quarter gross domestic product in the euro zone's third largest economy was up 1.8%, national statistics bureau ISTAT said.
A Reuters survey of 29 analysts had forecast a 0.2% quarterly increase and a 1.4% rise compared with the year earlier.
Analysts made favourable comparisons with Germany, whose economy stagnated in the first quarter.
"Germany disappoints, while Italy powers ahead," Franziska Palmas wrote in a report for Capital Economics, noting that Italy, the euro zone's traditional growth laggard, "continues to surprise to the upside."
Giancarlo Giorgetti, the economy minister in Giorgia Meloni's right-wing administration, commented on the data saying "responsible ambition has paid off".
In its Economic and Financial Document (DEF) unveiled this month, the Treasury raised its 2023 growth forecast to 1% from a 0.6% projection made in November, when Rome had estimated two straight quarters of GDP contraction between October and March.
"GDP growth in the first quarter belies the prophets of doom who had diagnosed a possible recession for our country," Industry Minister Adolfo Urso said after Friday's data.
ISTAT said the first quarter growth was supported by both domestic demand and exports.
It gave no numerical breakdown of components with its preliminary GDP estimate, but said industry and services had expanded, while agriculture stagnated.
The fourth quarter of last year was unrevised, showing a 0.1% quarter-on-quarter fall and a 1.4% rise year-on-year.
Throughout last year the economy held up consistently better than analysts had forecast despite headwinds from the war in Ukraine and sky-high energy costs, and grew by 3.7% over the year as a whole.
Looking ahead, however, the outlook has been clouded by European Central Bank interest rate hikes aimed at curbing inflation.
Adding to the challenge, Meloni needs to phase out expansionary policies adopted since the COVID-19 pandemic as European Union authorities are pushing for fiscal tightening.
Italy is also facing growing difficulties in meeting policy conditions set by the European Commission for the transfer of billions of euros of COVID-19 pandemic recovery funds, intended to support growth.