At war with the virus

EcoPerspectives // 2nd quarter 2020  
At war with the virus  
The outbreak of Covid-19 hit Italy while the economy was already contracting. The exceptional growth of infected people has brought  
the Italian Government to take harsh measures, that include stopping all economic activities, excluding those considered as  
necessary, and imposing a quarantine for the entire population. The combination of an induced supply and demand shocks is going  
to cause a recession, which is expected to be deep and to last at least until June. In 2020 as a whole, despite the strong support  
coming from fiscal and monetary policy, the Italian economy should decline by some percentage points.  
An already contracting economy  
- GDP Growth and inflation  
Y/Y, %)  
The outbreak of Covid-19 hit Italy while the economy was already  
contracting. In Q4 2019, real GDP declined by 0.3% q/q, with the  
annual growth rate falling to 0.1%. Domestic demand was  
disappointing. Private consumption slightly fell, as Italian  
households suffered from a still moderate evolution of income.  
Labour market conditions were mixed. The number of hours worked  
declined, remaining well below the 2008 level. Investment has  
further stagnated, as firms continued to be extremely cautious. The  
contribution of net exports was positive, as imports strongly fell,  
while destocking subtracted 0.7 percentage points from the overall  
growth. The carry-over for 2020, assuming no quarterly GDP  
increase, is -0.2%.  
GDP Growth  
The crisis from a regional and sector perspective  
Source: BNP Paribas Global Markets  
In Italy, since the first Covid-19 case appeared, the number of  
infected people has significantly and rapidly increased. In response  
to this health crisis, the Italian Government has taken several  
measures, culminating in the quarantining of the entire Italian  
population. People are forbidden to leave their homes except for  
emergencies or essential work-related purposes. In the first stage of  
the quarantine, bars, restaurants, schools, museums and all  
retailers, other than pharmacies and food and beverages shops,  
were closed. A second set of measures implemented the shutdown  
of all productive activities, excluding those considered as necessary,  
such as food and pharmaceuticals industries and activity in some  
segments of metal products, machinery and equipment sectors.  
These measures have had a strong economic impact. Services,  
which have sustained the Italian economy over the last few years,  
enabling to recovering terms of value added what had been lost  
during the last recession and partly offsetting the decline in  
manufacturing, are now suffering from a substantial standstill of  
activity. This is particularly true of tourism, owing to the banning of  
all non-essential trips and public gatherings and the fact that similar  
measures were adopted in other countries. Since the end of the  
global financial crisis, the tourism sector had been growing, with  
expenditure by foreign travellers rising by almost a half and reaching  
EUR 42 bn, 7% of total exports of goods and services. The total  
number of nights spent in Italy had reached 430 million, the  
historical highest value.  
- Real GDP  
% change  
2008 09 10 11 12 13 14 15 16 17 18 2019  
Source: BNL, calculations on Istat data  
In the last ten years, Italian households have deeply changed their  
consumption habits, spending much in restaurants and less in food  
and beverages shops. Private spending in hotels and restaurants  
rose well above EUR 110 bn, about 10% of total yearly consumption.  
With respect to the 2008 values, employment in this sector has risen  
by almost one third, against only a moderate evolution in the  
economy as a whole, reaching 1.7 million of the working population  
with EUR 65 bn of value added.  
The effect of the restrictive measures on the retail and wholesale  
trade seems to be mixed, with some sectors, such as the food  
industry, benefiting from an increasing demand, while others, such  
as the clothing sector suffering from a total stop of activity. In Italy,  
the retail and wholesale trade sector as a whole employs more than  
The crisis has also negatively impacted hotels and restaurants, a  
sector that had previously showed strong dynamics, becoming  
extremely important for the economy.  
EcoPerspectives // 2nd quarter 2020  
.7 million people, about 15% of total employment, and contributes  
3- Value added by sector  
million, 2019  
to almost 12% of value added.  
The manufacturing sector in Italy was experiencing a decline before  
the outbreak of the virus. In the last two years, value added has  
decreased by almost 2%, declining by more than 10 percentage  
points below 2008 level. Manufacturing accounts for about 17% of  
total economy. The decision to stop non-essential activities has  
impacted the metal products sector, which has the highest share on  
manufacturing as a whole, with more than EUR 40 billion of value  
added, and the machinery and transport sectors. The  
pharmaceuticals sector, which is playing an important role in this  
period, with less than EUR 10 bn of value added, covers only 0.6%  
of the total economy, also showing a significant dependence on  
imports. A strengthening of demand seems also to be involving the  
food and beverages sector, which in 2019 recorded EUR 30 bn of  
value added with a workforce of almost 500 thousand people.  
Source: BNL, calculations Istat data  
From a geographical perspective, the regions most affected by the  
Covid-19 outbreak are the wealthiest and most industrialized in  
Northern Italy. In 2019, Lombardia, Veneto and Emilia Romagna  
together accounted for more than half of total exports, with a  
turnover of almost EUR 260 bn made abroad. These three regions  
are strongly embedded into European supply chain, providing vital  
components to German factories.  
least a 50 working days record in 2019). In total, eligible workers are  
almost 5 million and the measure will amount to a cost of  
EUR 2.8 bn.  
To support enterprises and households that have been particularly  
affected by the crisis, the deferral of the deadline of taxes and social  
contributions is made possible.  
Given the persisting uncertainty about the duration of the health  
crisis, the economic impact of the Covid-19 epidemic will be  
significant, although difficult to assess at this stage. The  
combination of induced supply and demand shocks is going to  
cause a recession that is expected to be deep and to last at least  
until June. In 2020 as a whole, despite the strong support coming  
from fiscal and monetary policy, the Italian economy is expected to  
decline by some percentage points. Should the mitigation measures  
be effective, economic activity could come back to a sort of  
normality through the second half of the year. The strength of the  
recovery would also depend on the strength of the external demand.  
A difficult fiscal manoeuvre to counter the crisis  
The Italian Government has approved the “CuraItalia” decree, trying  
to counter the worsening of overall conditions. Total measures  
amount to EUR 25 bn, about 1.5% of GDP, with 3.5 billion to  
strengthen the health system, also financing the hiring of about 20  
thousand people.  
The SME guarantee fund will benefit from about EUR 1.2 billion in  
new financing, to provide public guarantee to bank loans to SME.  
The Fund will cover loans up to EUR 5 million, while easier  
procedures will be applied to guarantees below EUR 3,000. To  
sustain Italian exports, the Ministry of Economy will provide SACE  
the Italian exports credit agency) with a guarantee aimed at  
supporting the sectors most hit by the crisis.  
Paolo Ciocca  
For SMEs, payments for mortgages and loans are suspended.  
Revocable (overdraft) credit facilities cannot be revoked until  
September 30 , non-instalment loans with contractual expiration are  
extended until September 30 , and payment of any instalment is  
suspended until that date.  
To support the labour market (employment and workers) the  
legislative decree provides the extension of unemployment benefits  
to all enterprises, included one-person enterprises, for a total public  
finances cost of up to EUR 5 billion.  
A personal income support has been introduced, with a one-time  
payment of 600 euros provided in March to workers, freelance  
professionals, workers with a non-fixed term contract and seasonal  
workers, who are employed in tourism or agriculture sectors (with at  
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 2485 articles et 640 vidéos