Italy's economy shrank 0.7 percent in the fourth quarter of 2011, following a 0.2 percent decline in gross domestic product in the third quarter.

Prime Minister Mario Monti bowed to pressure from the ECB, World Bank and IMF, he rushed through a misguided 33 billion euro ($43 billion) austerity plan in December and is now working on reforms to boost growth, is due to meet with Germany Chancellor Angela Merkel on Tuesday for talks in Rome.

Italy's national statistics office, ISTAT, said GDP fell 0.4 percent year-on-year in the fourth quarter, revising a preliminary estimate of a 0.5 percent fall.

Economic indicators are pointing to a further slowdown for most of 2012 in Italy, which has been the most sluggish economy in the euro zone over the last decade. The Organization for Economic Cooperation and Development said on Monday that there were tentative signs of economic improvement in the euro zone.

The Bank of Italy forecasts a 1.5 percent full-year contraction in 2012, far steeper than the government's official projection of 0.4 percent.

Monti's austerity measures include spending cuts, tax hikes and pension reform and are aimed at balancing the budget in 2013, though critics say they will weigh on Italy's already chronically low growth rates.

Market concerns about the sustainability of the country's 1.9 trillion euro public debt have calmed since Monti replaced Silvio Berlusconi in November and yields on Italy's 10-year bonds have fallen to below 5 percent from peaks close to 8 percent at the end of 2011.

Monti is now working on measures to stimulate the economy, and his government is due to meet with unions and employers on Monday to discuss a labor market reform to follow deregulation measures announced in January. Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.