* Q4 2020 GDP -2.0% q/q, -6.6% y/y * Domestic demand and trade both negative for GDP * Prelim full-year 2020 GDP -8.8% vs govt target of -9% ROME, Feb 2 (Reuters) - Italy’s economy shrank by 2.0% in the fourth quarter of last year from the previous three months, preliminary data showed on Tuesday, a slightly smaller slump than expected after a rebound in the third quarter. On a year-on-year basis, fourth quarter gross domestic product in the euro zone’s third largest economy was down 6.6%, national statistics bureau ISTAT said. A Reuters survey of 24 analysts had forecast a 2.2% quarterly fall, down 6.7% from the year earlier. The Italian economy plunged in the first half of last year due to government lockdowns to try to rein in the coronavirus. It rebounded by 16% in the third quarter when restrictions were relaxed, before shrinking again at the end of the year as the epidemic gathered strength, forcing new curbs on businesses and freedom of movement. ISTAT marginally revised its third quarter data to show a 16.0% quarter-on-quarter rise and a 5.1% year-on-year fall, previously reported as 15.9% and -5.0%. Over the whole year, GDP shrank by 8.8%, according to ISTAT’s preliminary estimate, not adjusted by the number of days worked. That was the steepest annual GDP drop for Italy since World War II but it was a slightly smaller contraction that the -9% forecast by the Italian government. The institute will issue definitive full-year data on March 1. ADVERTISEMENT Looking ahead, Rome officially forecasts a rebound of 6% this year, although Economy Minister Roberto Gualtieri has warned this will probably have to be revised down as COVID-19 continues to blight economic prospects. ISTAT in December forecast 2021 growth of 4%. The outlook for the first quarter is highly uncertain and dependent on infection rates and government-imposed restrictions. ISTAT said that in the fourth quarter domestics demand and trade flows both contributed negatively to GDP. It gave no numerical breakdown of components with its preliminary estimate, but said industry, services and agriculture had all declined.. Italy, the first Western country to be hit by the COVID-19 pandemic, has recorded almost 89,000 fatalities since its outbreak emerged almost a year ago, the second highest death toll in Europe and the sixth highest in the world.