Italy’s economy shrank 0.7 per cent in the second quarter, underlining a deepening recession, as government austerity measures continue to affect everything from factory activity to consumer spending.Italy’s GDP fell for the fourth quarter in a row, preliminary figures showed.Compared with a year earlier, growth slumped by 2.5 per cent, Istat said.GDP fell by 0.8% in the first quarter compared with the final three months of 2011, the statistical agency said.Earlier, data showed that factory output in June slumped 1.4 per cent compared to May and 8.2 per cent year on year.Agencies