Perspectives

Coping with the second wave

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
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ITALY  
ITALY: COPING WITH THE SECOND WAVE  
Following an impressive decline in the first half of 2020, the Italian economy rebounded over the summer. Value  
added rose strongly in construction and manufacturing, while the recovery in the services sector was less substantial.  
Favourable indications also come from house prices invalidating the darkest scenario depicted at the beginning of  
the pandemic. To contain the second wave of infections, the Italian Government has taken restrictive measures,  
with negative effects on activity. The economy is expected to decline in Q4 again. This contraction should be less  
significant than in the first half of the year, with only a moderate impact on 2020 growth, while the carry- over in  
2
021 should be more sizeable.  
GROWTH AND INFLATION (%)  
A WIDESPREAD SUMMER RECOVERY  
Following the impressive decline recorded in the first half of 2020  
GDP Growth  
Forecast  
.0  
Inflation  
(
-5.5% in Q1 and -13% in Q2), the Italian economy rebounded over the  
Forecast  
summer. In Q3, real GDP rose by 15.9% q/q, although remaining almost  
6
7
5
3
1
1
3
5
7
9
5
percentage points below Q4 2019 level. Net exports contribution was  
3.4  
positive (+4%), as exports increased by 30.7% and imports by 15.9%,  
while domestic demand added 13 percentage points to the overall  
growth, benefitting from the significant rebound of investment, which  
rose by 31,3% q/q, more than offsetting previous declines (-7.6% in Q1  
and -17% in Q2).  
1.3  
0
.6  
0.5  
0
.3  
-
-
-
-
-
-0.2  
From July to September, capital spending rose by about EUR 20 billion  
in comparison with Q2, adding 5.3% to the overall Q3 growth. The  
recovery was widespread, with investment in construction rising by  
about 45%, both for dwellings and for other buildings, more than  
machinery and equipment (+34%). Expenditure on intellectual property  
products, which had remained virtually unchanged since the outbreak  
of the virus, rose by less than 1%.  
-
9.1  
-
11  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
CHART 1  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
Given the end of the lockdown and the easing of social distancing  
measures, private consumption increased by 12.4% in Q3, after -6.8%  
in Q1 and -11.5% in Q2, with a 7.5% positive contribution to the GDP  
growth. Despite the summer rebound, consumption is still about  
REAL GDP AND COMPONENTS (Q3/Q2 % CHANGE)  
5
0
7
% below Q4 2019. Italian households increased expenditures by  
40  
EUR 27 bn, after a reduction of EUR 47 bn in the previous two quarters.  
In Q3, purchases of durable goods rose by more than 45%, moving  
above the 2019 level, while those of services, which account for about  
half of total consumption, despite increasing by 16.4%, are still more  
than 10% lower than pre-pandemic values.  
30  
2
0
0
0
1
A MANUFACTURING RECOVERY  
In Q3, the economic recovery was widespread. Manufacturing value  
added rose by 35% q/q. Production rebounded in sectors that had  
undergone the largest contraction in previous quarters, such as  
textiles products, clothes and shoes and means of transport. Despite  
the summer improvement, manufacturing is still recording a 4% loss  
in comparison with Q4 2019, with some sectors well below pre-crisis  
level.  
CHART 2  
SOURCE: BNL CALCULATIONS ON ISTAT DATA  
In services, which was the only sector to have recovered the 2008 level  
before the outbreak of the virus, the recovery was less more limited.  
Value added increased by almost 12%, after dropping by -4.6% in Q1  
and -11.4% in Q2. Turnover in the accommodation and food service  
activities rose by more than 160%, although remaining 25 percentage  
points below Q4 2019, benefitting from a moderate recovery in the  
tourist sector. In Q3, expenditure of non-residents rose by five times on  
a quarterly basis.  
REAL ESTATE: A LESS GLOOMY SCENARIO  
In Q3 the construction sector experienced a strong rebound: indeed, the  
value added growth (+46% q/q) more than compensated the decline  
recorded in the previous quarter. Favourable indications also come  
from house prices. In fact, the unexpectedly sustained growth recorded  
during the first six months of the year invalidates the darkest scenario  
depicted at the beginning of the pandemic (-10% y/y for house prices  
in 2020). According to Istat data, between April and June the prices  
The bank  
for a changing  
world  
st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
1
6
of houses purchased by families increased by 3.1% q/q and 3.4% y/y -  
the highest changes ever recorded since these series became available  
ITALY: HOUSE PRICES (INDEX)  
(
2010) - the prices of the new and existing houses rising respectively  
by+2.7% and +3.7%. The second quarter data follow the positive trend  
already recorded in the first three months of 2020 (+1.7% y/y, +0.9%  
q/q) when the pandemic was only at the beginning, with most of the  
real estate transactions relating to agreements settled before the  
lockdown.  
Total  
New dwellings  
Existing dwellings  
2
130  
015=100  
1
1
1
1
25  
20  
15  
10  
Assuming stable prices in the second part of the year, the growth rate  
for house prices in 2020 would be +3.2%, a value never reached since  
the data have been available (2010) (curiously, in a year when the  
pandemic will bring the change in the Italian GDP to a historical low  
level). The price growth has been quite homogeneous in all the areas  
of the country: in the North West regions house prices grew by 5.5% y/y,  
mainlydrivenbythegoodperformanceofMilan, wherepriceshavebeen  
growing for nineteen quarters in a row and where, quite unexpectedly,  
they recorded an increase of +13.5% and +15.9% y/y respectively the  
first and second quarter of 2020. The uncertainty that still surrounds  
the evolution of the pandemic makes it difficult to predict the future  
price trend. The evidence seems to suggest that the increased time  
that households spend in their houses (due to the lockdowns and  
the increased popularity of working from home) might have inflated  
the demand for bigger and more expensive houses. More likely, due  
105  
1
00  
95  
2010  
2012  
2014  
2016  
2018  
2020  
CHART 3  
SOURCE: BNL CALCULATIONS ON ISTAT DATA  
to the lockdowns and the weak economic activity that followed, only THE EFFECT OF THE SECOND WAVE ON THE ITALIAN ECONOMY  
the few transactions involving parties with a strong commitment to  
After declining from April to June, the number of new daily cases  
buy (or with an agreement settled before the pandemic) may have  
of COVID-19 has risen again since August, strongly accelerating in  
been carried out. These hypotheses seem supported by the deep fall  
October and reaching a peak in the middle of November. To contain  
in house transactions during the first six months of 2020. According to  
the second wave of the infection, the Italian Government has taken  
Agenzia del Territorio, after decreasing by 15.5% between January and  
restrictive measures, including a partial lockdown in some regions,  
March, house sales fell by 27.2% between April and June (with a loss  
with negative effects on economic activity. In September, production  
in sales of 43 thousands homes compared to the same period in 2019).  
declined by almost 6% m/m, with that of textile, clothing and shoes  
The decline is evenly distributed throughout the country, reaching  
falling by one fourth and that of means of transport by more than  
the lowest values in the Southern regions (-33.4%) and in the islands  
1
0%. Given the worsening of the global scenario, Italian exports in non-  
(
-34.2%).  
EU countries fell by 2.6% in October and business confidence again  
declined. Besides, labour market conditions are still uncertain, with  
a negative effect on the income evolution of households. The number  
of persons in employment made only a partial recovery, remaining  
The drop in transactions hit main cities in quite a homogeneous way,  
including Milan, Rome and Turin, where house sales decreased by 26.5,  
2
3.4 and 27.5% respectively in the second quarter of 2020.  
Ad hoc surveys conducted by specialized operators show stagnant de- more than 420 thousand below the level of the beginning of 2020.  
mand for the months to come, mostly driven by the desire to adapt the The recourse to social safety nets has softened the effects of the crisis  
house to the new habits. The need for many families to carry out a large on the unemployment rate, which continued to hover slightly below  
part of their working life or school activities at home might lead to an 10%. Despite several measures approved by the Italian Government  
increase in the demand for larger places with well-separated rooms to support households and firms’ income -especially in sectors more  
and outdoor spaces. However, the uncertainty about the macroecono- affected by the crisis- the economy is expected to decline again in Q4.  
mic scenario and the reduced profitability of the lease (mainly due to The contraction should be less significant than in the first half of the  
the collapse of short-term rents) might cut the demand for investment, year, with only a moderate impact on 2020 growth, while the carry-  
which had supported the real estate sector in the months preceding over in 2021 should be stronger.  
the outbreak of the epidemic. The decline in incomes and rents and the  
dependence of part of the demand on bank credit are elements that  
may contribute to a contraction, while the new use that families make  
of living spaces could represent a supporting factor. A more precise  
Completed on 7 December 2020  
scenario can only be determined in the next months. It depends on paolo.ciocca@bnlmail.com  
the impact of the prolonged emergency on the Italian economy and on  
whether the change in work organisation is permanent or not.  
The bank  
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world  
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