Perspectives

Towards an uncertain recovery

Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)  
economic-research.bnpparibas.com  
1
4
ITALY  
TOWARDS AN UNCERTAIN RECOVERY  
In Q2 2020, real GDP fell by 12.8%, dropping down to values recorded in the 1990s. A weakened domestic demand  
was the main driver of the recession, with households reducing their expenditure and investment falling by 15%.  
The contraction became widespread. The real estate sector sent mixed messages: in Q1 2020 prices went up while  
transactions experienced a sharp decline. Latest data have signaled a rebound of the economy, even if the scenario  
remains uncertain. The strength of the recovery will depend on the behaviour of businesses and households, which  
will in turn be affected by the evolution of the pandemic. In the real estate sector, both prices and transactions  
should experience a sharp decline by the end of the year. Transactions should only partially recover in 2022.  
BACK TO THE 1990S  
GROWTH AND INFLATION (%)  
Italy was the first Western economy where the epidemic took hold.  
Severe restriction measures to contain the propagation of the Covid-19  
were implemented some weeks before other countries. The limitation  
of people movements and of social interactions and the closure of  
many productive activities had a negative impact on the economy. In  
Q2 2020, at the height of the national lockdown, real GDP collapsed  
by 12.8% q/q (-5.5% in Q1 2020). Net exports contributed negatively  
GDP Growth  
Inflation  
Forecast  
Forecast  
8
6
5.3  
4
1
.2  
0.7  
0.6  
0.4  
2
0
-2  
4
6
8
10  
-12  
14  
0.3  
0.2  
(
-2.4%), as exports declined more than imports (respectively -26.4%  
-
-
-
and -20.5%), The contribution of inventories was also negative (-0.9%).  
On annual basis, the economy contracted by 17.7%, dropping down to  
values observed at the beginning of the 1990s.  
-
-
10.0  
The economic contraction was widespread. In the manufacturing sector,  
which had already been experiencing a slowdown of activity since  
the beginning of 2018, value added declined by 22.2% in Q2 (-9.1% in  
Q1). In the first half of 2020, production fell by more than 30% in the  
transportation sector as well as in that of textile, clothes and shoes,  
while the areas of food and pharmaceutical products slightly declined.  
In the services sector, which was the only one to have recovered the  
losses of the previous two recessions, value added fell by 11% in Q2  
-
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
CHART 1  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
LABOUR MARKET  
(
-4.7% in Q1). As a consequence of stringent restrictions on travel,  
turnover in accommodation and food services activities declined  
by more than 60%. According to current account data, international  
tourism receipts in Italy collapsed from EUR 12 billion in Q2 2019 to  
EUR 1.8 billion in Q2 2020, with the number of foreign travellers falling  
from 25.9 to 4.9 million.  
mns  
mns  
Hours worked  
Employment (RHS)  
11 600  
25.800  
25.600  
25.400  
25.200  
1
1 100  
0 600  
1
SLUGGISH DOMESTIC DEMAND  
10 100  
25.000  
24.800  
In Q2, domestic demand was the main driver of the impressive drop in  
GDP, with a 9.5% negative contribution.  
9
9
8
600  
100  
600  
2
4.600  
4.400  
Private consumption fell by 6.7% in Q1 and 11.3% in Q2, accounting for  
more than 10 percentage points of the economic contraction recorded  
in the first half of the year. Italian consumers reduced their expendi-  
ture by more than EUR 45 billion, mainly cutting down on services and  
durable goods spending. Households economic conditions worsened  
further. Despite the introduction of a temporary prohibition to lay off  
workers, from Q4 2019 to Q2 2020, the number of persons in work de-  
clined by more than 750 thousand, with the employment rate in June  
falling to about 1.5 percentage points below the peak reached in 2019,  
while that of hours worked collapsed by almost one fifth. Consumer  
confidence data suggest that the propensity to save has remained high  
in Q2, after having increased above 12%, the highest value in the last  
fifteen years. Although declining from the record reached in April, the  
amount of household’s bank deposits is still EUR 23 billion higher than  
in December 2019.  
2
24.200  
2
008  
2010  
2012  
2014  
2016  
2018  
2020  
CHART 2  
SOURCE: BNL CALCULATIONS ON ISTAT DATA  
The recent dynamics of domestic demand also mirrored the huge  
decline in investment (-15% in Q2 and -7.5% in Q1), which subtracted  
about 4 percentage points from GDP. Since the beginning of the  
crisis, expenditure on gross fixed capital formation has declined by  
EUR 17 billion. From Q4 2019 to Q2 2020, investment in machinery and  
equipment fell by 25% and those in means of transport by 38%. Italian  
firms remained extremely cautious, owing to the persisting uncertainty  
The bank  
for a changing  
world  
Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)  
economic-research.bnpparibas.com  
1
5
about the economic outlook. According to trade balance data, in Q2,  
exports declined by 15% q/q, with means of transport, clothes, shoes  
and machinery contracting strongly, while sales abroad of food and  
pharmaceutical products ncreased slightly.  
CONSTRUCTION SECTOR: VALUE ADDED  
q/q, %  
5
0
A STILL UNCERTAIN RECOVERY AHEAD  
Latest available data have signalled a rebound of the Italian economy  
in Q3. The reopening of global trade supported exports, which  
increased strongly in May and June, after having collapsed in the  
previous two months. With the gradual reopening of activity, industrial  
production rose by more than 60% from the trough reached in April.  
The cancellation of the general quarantine and the easing of social  
restrictions supported domestic demand, with retail sales rebounding  
in May and June, though slightly declining in July. Besides, in June, the  
number of persons in work rose by 85 thousand.  
-5  
10  
15  
-
-
-20  
-25  
2
008  
2010  
2012  
2014  
2016  
2018  
2020  
The worst seems to be behind us, however the outlook remains  
extremely uncertain. After the Q3 rebound, a slowdown of activity is  
expected between the end of the year and the beginning of 2021. The  
strength of the recovery will depend on the behaviour of businesses  
and households, which will be determined by the evolution of the  
pandemic.  
CHART 3  
SOURCE: BNL CALCULATIONS ON ISTAT DATA  
MIXED SIGNALS FROM THE REAL ESTATE SECTOR  
In Italy, the real estate sector sends mixed messages. Between As a consequence, the sector has suffered a decline in employment:  
January and March 2020, according to Istat (Istituto Nazionale di in the first half of 2020, employment has decreased by 40,000 units  
Statistica) estimates, the price of residential properties has increased compared to the same period in 2019, accounting for about 3% of the  
by 1.7% yoy, the largest increase since Q2 2011. The performance is overall loss recorded by the entire economy in Italy over the same  
due both to newly built houses and (above all) existing ones whose period.  
prices have increased by 0.9% and 1.9% yoy respectively, showing a  
clear acceleration compared to Q4 2019. On a quarterly basis house  
prices have increased by 0.9%. The restrictive measures introduced in paolo.ciocca@bnlmail.com  
March to stop the spread of the Covid-19 pandemic did not have a  
significant impact on the prices of residential properties, whose sales  
were finalized before the outbreak of the sanitary crisis. In the quarters  
to come, however, house prices are expected to record a sharp decline.  
On the whole the decline of house prices from 2010 (first year for which  
official data are available) to Q1 2020 amounts to 15.8%. This decline is  
due to a significant price decrease of existing homes, with prices 22.2 %  
lower at the beginning of 2020 than in 2010. Newly built houses prices  
were just 1.5% higher than eight years ago.  
On the contrary, the measures introduced in March to stop the  
pandemic have drastically limited the possibility of signing new  
notarial deeds since March, leading to a sharp decline in real estate  
transactions. Between January and March 2020, residential property  
sales (non-seasonally adjusted) declined by 15.5% y/y (from -3.3% in  
the previous quarter) to about 117,000 deals (14,000 less than in the  
same quarter of the previous year). The decline was homogeneous in  
all areas of the country, with negative peaks in Milan (-19.3%), Naples  
(
-19.5%) and Genoa (-19.2%). In Rome transactions declined by 14.8%.  
According to some preliminary estimates in Q2 2020, the decline in real  
estate transactions should have been much deeper than in Q1. By the  
end of the year, transactions should be less than 500,000 from 603,000  
in 2019. The recovery in 2022 will probably be only partial.  
The overall construction sector has suffered dramatically from the  
lockdown and the ensuing recession. According to Istat data, in Q2 2020  
the value added in the sector declined by 22% compared to Q1 2020  
and 26% with respect to the same quarter in the previous year.  
The bank  
for a changing  
world  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
Ce site présente leurs analyses.
Le site contient 2682 articles et 705 vidéos