GDP in 2020 will drop by 8%, as indicated by the government in the last Def (Economics and finance document), only the anti-contagion measures will be revoked starting from June. Otherwise – for example due to a resurgence of the epidemic in the autumn – the collapse will be worse. That's what the claims Bank of Italy in a hearing before the House and Senate Budget Committees on the Def.
"A fall in GDP of the order of that presented in the Def - said Eugenio Gaiotti, head of the Bank of Italy's Economics and Statistics Department - may be consistent with the hypothesis of a limited duration of containment measures and one of them gradual reabsorption starting from June, having a relatively rapid recovery in the second half of the year".
In this scenario, according to Via Nazionale, “the effect of internal containment measures and international spillovers, transmitted through the fall in world trade and tourist flows, would contribute to the decline in GDP in an almost analogous measure. Larger GDP reductions would result in a scenario where it was the evolution of the epidemic is less favourable".
In any case, in the first half of the year many indicators point to “an exceptional drop in economic activity”, including energy consumption and business confidence. “A blockade of this magnitude leads to a fall in GDP of about 6 percentage points in the first quarter – added Gaiotti – and probably more accentuated in the second; a recovery could take place in the second half of the year”.
The Bank of Italy therefore underlines that the uncertainty about the duration of the coronavirus pandemic “pays off it is extremely difficult to quantify its economic consequences, but all scenarios indicate very strong repercussionswhich will extend over the short term. This uncertainty can weigh on investments and consumption for a long time. Recovery times will depend primarily on the evolution of the contagion, but the effectiveness of support policies will play an essential role".
In reference to measures taken by the government, Gaiotti said that these are interventions “appropriate in size and design to the phase of the epidemic in which they were launched: they are helping to counter the repercussions on households and to avoid a liquidity crisis for businesses which would have had very serious consequences. Once the emergency has passed, public action will also be necessary to ensure the recovery of the economy”.
According to Bankitalia "the assessment expressed in the Def is acceptable, according to which the economy will need an adequate period of support and recovery, during which restrictive fiscal policies would be counterproductive. At the same time, as the Document underlines, the elaboration of a long-term strategy on which it also depends should not be overlooked the reduction of the ratio between public debt and GDP".
The situation will be particularly complex because, "according to the estimates of the Def trend picture, in the current year compared to 2019 overall revenue would drop nearly 6%: such a downturn would be unprecedented in at least the last 50 years. And in 2021, only part of the revenue loss would be recovered. In fact, excluding the revenues deriving from the activation of the safeguard clauses on indirect taxes, the forecasts of the Def trend framework would indicate an overall revenue in 2021 approximately 4% higher than that of 2020".
In the end, "debt sustainability – concluded Gaiotti – is not altered by a temporary shock, even of a far-reaching nature, in the presence of a credible strategy for public finances and for economic growth, which guarantees in the medium term a favorable evolution of the differential between the of output and the average debt burden. This will require the contribution of all economic policies and all components of the economy”.
