Perspectives

The way to recovery gets longer

nd  
Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
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ITALY  
THE WAY TO RECOVERY GETS LONGER  
In 2020, real GDP fell by 8.9%, with almost 2.5 million of full-time equivalent jobs lost. The decline in consumption  
was the main driver of the recession, accounting for three fourths of the economic downturn. Stagnating incomes  
and the lack of confidence increased households’ propensity to save. The services sector was the most severely  
affected by the crisis, with value added declining by 8.1%, while manufacturing benefitted from the moderate  
recovery of exports. The problems raised by the pandemic combined with -and worsened- structural issues that had  
been slowing down the country’s economic growth up to now. In the years to come it will be hard to implement a  
solid growth pattern without decisive interventions that would foster innovation and productivity.  
GROWTH AND INFLATION (%)  
HOUSEHOLDS WITH AN INCOME AND CONFIDENCE  
PROBLEM  
GDP Growth  
Forecast  
Inflation  
Forecast  
Following the rebound in Q3 2020 (+15.9%), real GDP fell by 1.9% in Q4.  
The second wave of infections required new restrictive measures on  
mobility and economic activities. Both foreign and domestic demand  
made a negative contribution. Exports rose less than imports, while  
the contraction of consumption more than offset the increase in  
investments and the positive contribution of public expenditure.  
8
6
4
2
0
2
4
-6  
-8  
-10  
5.0  
3.9  
1
.5  
1.4  
0.6  
0.3  
-
0.1  
-
-
In 2020 as a whole, real GDP declined by 8.9%. The decline in  
consumption was the main driver of the recession, accounting for three  
fourths of the GDP decline, much more than during the two previous  
recessions. Private spending fell by 10.7%, with a 6.5% negative  
contribution to the contraction of GDP. Italian households suffered  
both from the disappointing income evolution and the deterioration  
in confidence. In 2020, almost 2.5 million of full-time equivalent jobs  
were lost. From January to September, households’ gross disposable  
income declined by more than EUR 20 billion and the propensity to save  
doubled, following the effects of restrictive measures and consumers  
adopting a more cautious behaviour.  
In 2020, Italian households reduced spending on entertainment and  
culture, transports, restaurants and hotels, while increasing purchases  
on food and beverages, communication and house maintenance and  
services. Despite the pandemic, spending on health, which includes  
medical products, appliances, equipment and hospital services,  
declined by 6.2%. Online purchases, which accounted for 4% of total  
retail sales in 2019 (8% in France and 11% in Germany), rose by 35%.  
-
8.9  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
CHART 1  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
CONTIBUTIONS TO GDP GROWTH  
%
4
Consumption  
Investment  
Stocks  
Public expenditure  
Net exports  
GDP  
2
0
-
-
-
2
4
6
2
020: THE SEVERE CRISIS OF THE SERVICES SECTOR  
The services sector, the only one that in 2019 had recovered the  
decline recorded during the previous two crises, suffered much more  
than the rest of the economy. In 2020, services value added declined  
by 8.1%, with a 6% negative contribution, with the number of full-time  
equivalent employees falling by 11%, almost 2 million less than in  
-8  
10  
-
2
019.  
2
008-09  
2012-14  
2020  
The recession became widespread, but with differences among sectors.  
Information and communication value added rose by 1.9%, while that  
of financial and insurance activities fell by 2.6%. Entertainment &  
recreation and transportation & storage value added declined by about  
CHART 2  
SOURCE: BNL CALCULATIONS ON ISTAT DATA  
1
5%. The hotel and catering sector was the most severely affected by  
A MORE RESILIENT MANUFACTURING SECTOR  
the crisis: value added collapsed by 40%, with half a million of full-time  
equivalent jobs lost. Restrictions on cross- border travel impacted the  
tourism industry. Foreign travellers in Italy declined from 96.2 million  
in 2019 to 39 million in 2020, with expenditure contracting from  
EUR 44.3 billion to EUR 17.4 billion.  
In 2020, manufacturing value added declined by 11.4%, mainly as a  
result of the strong contraction recorded in the first half of the year,  
while industry stagnated in Q4. The number of full-time equivalent  
employees in manufacturing declined by 376,000 (-11%), falling to  
about 3 million.  
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nd  
Eco Perspectives // 2 Quarter 2021  
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Textile, clothes and shoes sectors continued to be strongly hit by  
the crisis: value added declined by almost 25%, with a severe loss in  
employment. The contraction was milder in the food and beverages  
sector as well as in that of intermediate goods, such as chemical  
products and rubber and plastic products. Manufacturing benefitted  
from the moderate increase in exports. According to trade balance  
data, the value of Italian sales abroad has almost totally recovered the  
decline of the first part of the crisis.  
ITALY: THE PRODUCTIVE SYSTEM BY FIRMS’ SIZE (% OF TOTAL)  
Micro  
Small  
Medium  
Large  
2
2.7  
NEW PANDEMIC, OLD PROBLEMS  
4
3.7  
In Italy, the problems raised by the Covid 19 pandemic combined with  
1
3.3  
-
and worsened- structural issues that had been slowing down the  
country’s economic growth up to now (high public debt, a fragmented  
production system, low investment in education, R&D and innovation).  
In the years to come it will be hard to implement a solid growth  
pattern without decisive interventions that would foster innovation,  
productivity and sustainability.  
2
0.3  
At the outbreak of the Covid-19 pandemic, the latest data available  
showed a very fragmented productive system in Italy: micro-enterprises  
accounted for 95% of all Italian firms, employing 43.7% of the working  
population and contributing to 27.5% of the value added. In comparison  
with other European countries, Italian firms are smaller: they employ  
on average 4 persons compared to 4.5 in Spain, 5.6 in France and 11.9  
in Germany. Firms’ size affects both their productivity and propensity  
to invest. In Italy, labour productivity in a micro-enterprise amounts  
CHART 3  
SOURCE: BNL CALCULATIONS ON ISTAT DATA  
internal homogeneity in terms of firm size: the «static in crisis» are on  
average much smaller than the «proactive advanced» ones (6.5 and  
7.2 employees respectively).  
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to EUR 30,000, vs EUR 72,680 in a large one. In the manufacturing Even though firms’ reaction to the crisis largely depends on the different  
sector, a large firm invests about EUR 14,500 per employee and per impact that the lockdown measures had on the different sectors, it is  
year on average, vs EUR 3,600 euros for a micro one. The prevalence of obvious that the least productive units (with higher labour costs, a  
micro- and small-sized firms, and the subsequent low productivity and low-skilled workforce and a domestically-oriented business) suffered  
investment propensity, result in a scarce use of qualified personnel and the most by far. Among the “proactive advanced” firms, the value  
digital infrastructures by Italian firms. According to the most recent added per person employed more than double that in “static in crisis”  
Istat data, only 5.1% of the persons employed in the productive system companies (about EUR 73,000 against EUR 33,000) and their workforce  
have tertiary education or an academic diploma.  
is on average more educated. As far as firms’ activity is concerned, the  
most reactive companies are more numerous in the industrial sector,  
in particular chemicals, pharmaceuticals, electronics and beverages  
industries. In the services sector the firms that better reacted to  
the crisis are mainly those operating in the telecommunications,  
information technology, finance and insurance areas. Among the  
companies that suffered the most because of the crisis, regardless of  
the sector to which they belong, a high percentage did not make any  
structural investments (such as in R&D, human resources, technologies  
and digitization, human capital and training, internationalization,  
social responsibility and environmental fields) and therefore did not  
adopt any strategic changes to face the crisis.  
The use of digital infrastructures in Italy is strongly correlated to the  
firms’ size: the so-called “digitally mature” companies (i.e. firms that  
make an integrated and advanced use of the available technologies)  
are mostly large firms: 23% of firms with over 500 employees, 15%  
of those which employ 250-499 persons and 10% of those with 100-  
2
49 employees may be defined as “digitally mature”. Among small  
enterprises, the percentage of “digitally mature” ones does not exceed  
.3%.  
2
The structural limits of a part of the Italian productive system also  
affected the capacity of adaptation and the effectiveness of the response  
to the challenges posed by the Covid-19 pandemic. According to a  
recent analysis conducted by Istat on the reaction of Italian business  
to the current crisis, it is possible to distinguish five clusters of firms:  
Completed on 31 March 2021  
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. “Static in crisis”: companies that are heavily impacted by the health  
emergency and have not adopted specific reaction strategies; 2. “Static paolo.ciocca@bnlmail.com  
resilient”: companies that have not implemented reaction strategies  
because they have not suffered from significant negative effects;  
3
. “Proactive in distress”: companies hit by the crisis but which have  
put reaction strategies in place; 4. “Proactive in expansion”: companies  
barely affected by the crisis that have not altered their previous  
development pattern; 5. “Proactive advanced”: companies affected by  
the crisis, but which increased their investments compared to 2019.  
At the end of 2020, about 75% of Italian companies with at least three  
employees had not defined any strategic framework to deal with the  
consequences of the crisis in the medium-long term, and about one  
third showed signs of crisis or distress. The five groups exhibit a strong  
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