It may be a while before the fog lifts on Italy
The Italian economy was already looking rather parlous at the start of this year, with global bodies like the International Monetary Fund, World Bank and European Commission all predicting almost negligible growth rates.
Even the January forecast from Italy’s official statistics agency suggested that GDP would increase by just 0.2 per cent over the course of 2020, far below the 0.6 per cent tentatively predicted by the coalition government several months earlier.
The nation’s banking sector remains in the doldrums, with credit availability for businesses which are hoping to expand remaining tight, and a consumer sector which is still looking markedly anaemic.
Perhaps as a consequence, the country’s banking stocks took a hammering as trading opened on Monday morning, even as other elements of European equity markets finally began to perk up again after a disastrous week.
And now, with the extended outbreak of coronavirus cases showing little sign of dissipating in some of Italy’s industrial powerhouse regions, the country must contend with the increasingly serious economic implications of a virus-induced slowdown; Lombardy, the region at the centre of the outbreak, accounts for 40 per cent of Italian industrial output.
That is not to mention the tragic loss of dozens of lives and the emergency treatment of hundreds of acutely ill patients.
But after weeks of turmoil, the government in Rome received some good news this week, with the first formal accounting of the national budget deficit for 2019 coming in below previous targets, at 1.6 per cent of total national output.
That remains well under the targeted 2.2 per cent and, significantly, almost half the European Commission’s permitted level of three per cent.
This development will give officials more impetus to spend more on combatting the spread of a potential pandemic, and already the Italian economy minister Roberto Gualtieri has announced that his department would respond aggressively to prop up the ailing economy.
He pledged €3.6bn (£3.1bn) worth of measures — equivalent to 0.2 per cent of GDP — on top of an earlier promise of €900m worth of aid.
The newly announced measures will include tax cuts, corporate tax credits for the businesses that are hardest hit by the outbreak, and a much needed cash injection for frontline healthcare efforts.
The “sick man of Europe” had already floated the idea of a fiscal response last week, when deputy finance minister Laura Castelli suggested that the European Commission would need to give her government some leeway to spend more, in a way that will almost certainly expand deficit spending — a figure that in recent years has proved a massive point of contention between Rome and Brussels.
“The EU would likely grant Italy even more leeway to miss its fiscal targets,” posited Berenberg economists Kallum Pickering and Holger Schmieding. However, they cautioned that economists can only predict the ability of an economy to bounce back once the worst of the outbreak is over. What they cannot do is predict the severity and duration of a potential medical emergency.
That job falls to healthcare and infectious disease experts, many of whom have predicted that the illness could become widespread. Over the weekend, the number of reported cases in Italy rose by 50 per cent, to nearly 1,700.
As the spread of the virus shows little sign of letting up, investors may have to wait some time yet to know when exactly this economic patient will finally be able to make it out of bed.