Due to the coronavirus emergency, Italian industrial production will fall by 15% in March. This is the provision contained in the report by the head of Bankitalia's Banking and Financial Supervision Department, Paolo Angelini, and by Giorgio Gobbi, head of the Financial Stability Service, presented at a hearing to the Banking Commission on the initiatives of the task force for the liquidity of the banking system in the health emergency. Via Nazionale's forecasts partially confirm those of Confindustria which it had announced on 2 April for industry, a drop of 16,6%.
“The high-frequency indicators used for the economic analysis agree in suggesting a decline in economic activity of exceptional proportions worldwide”, explained Angelini and Gobbi, underlining how in March in our country “the consumption of electricity and gas in the industrial sector fell by about 15 per cent compared to a year earlier”, while the indexes of the confidence climate of firms and purchasing managers suffered a sharp decline in the manufacturing sector, reaching an all-time low in the services and construction sectors. "A similar drop - reads the report - is recorded in household confidence indicators, in particular on personal economic prospects, on those of the country, on employment effects"
The crisis caused by the Covid-19 pandemic therefore risks leaving very heavy aftermaths in Italy despite the measures taken by the Government to keep the economy afloat. Bank of Italy underlines that, "even considering the positive effect of some of the measures contained in the "Cura Italia" decree (expansion of the CIG and moratorium for SMEs) and assuming full use of the available credit lines, our estimates indicate that between March and July the additional liquidity requirement of companies could reach 50 billion".
By virtue of what has just been said, Palazzo Koch deems it necessary to “ensure rapid deployment of government-approved emergency response tools, for example, methods for tracing the loans disbursed could be considered, such as the obligation to channel loans with public guarantees to dedicated accounts".
As for the banks, after the recommendations of the ECB (and of Bankitalia for the banks under its control) and the clarifications regarding capital, credit institutions will be able to "pull" capital resources for an amount equal to almost four percentage points of the CET1 ratio (the ratio of prime quality capital to risk-weighted assets). The capital freed up in this way will have to be used to support the economy while keeping the robustness of the system intact”, affirm Gobbi and Angelini.
However, there are risks associated above all with the possible increase in non-performing loans. The macroeconomic shock caused by the coronavirus "could generate a sharp increase in the loan default rate". However, Bank of Italy provides that "the legislative measures on moratoriums and on the suspension of mortgage installments for the purchase of homes and interventions to support household incomes and the business continuity of businesses will have the effect of containing, even to a significant extent, the flow of non-performing loans. In the medium term, the effects of the epidemic on credit quality will depend on the length of the recession and the speed of the recovery”.
Finally, the two economists analyzed the measures taken by the European Central Bank, explaining to parliamentarians how the intervention of monetary policy has "played a decisive role in restoring order to the markets", laying the foundations "for the action of governments and European institutions, which have the main role in managing the crisis" .
