The impact of the Coronavirus on the real economy can be seen in the first numbers on inflation and employment in February and in the forecasts for March. The stop to production activities, the forced isolation of millions of people are making the first effects felt in Europe and in the USA, even if the tsunami it will be felt especially in the second quarter of 2020, the signs are already there.
In the United States, initial estimates indicate that the coronavirus could cost the loss of 47 million jobs, a very high number albeit proportionate to a population of over 300 million inhabitants. Not only that: in the wake of this forecast and the effects of the stock market crash, consumer confidence surveyed by the Conference Board in March is expected to drop significantly to 110 from 130,7 in February.
But things are no better in Europe. Waiting to understand what will happen to us, while it's on the way a further maneuver that will bring state spending to 50 billion to support the emergency and while a gradual reopening of production activities is assumed no earlier than April 18, our European neighbors are also dealing with the crisis. In Germany lhe unemployment according to the PMI survey should increase by 40 thousand units in March, with a consequent increase in the rate by one tenth to 5,1%.
The decline in employment is the fastest since May 2009 and has affected both manufacturing and services. To protect the labor market the German government has extended its Kurzarbeit programme, which allows companies, if they face a drop in demand, to reduce working hours without having to lay off workers. The program effectively prevented a sharp rise in unemployment during the 2008-09 recession. Germany is also grappling with the slowdown in inflation: in March, the flash estimate indicates a drop to 1,4% y/y, after the peak reached with 1,7% in February.
In Italy according to Istat, this figure could even drop negative as early as March, to -0,3% y/y. The largest contribution to the price decline is expected to come from transportation, while increases are expected in the food sector. The measures taken to combat COVID-19 could not only push inflation down in the coming months, but also cause problems in the statistical significance of the data. In any case, the downward trend in prices should accentuate in April, in the wake of the tariff cut.
Pessimism is widespread throughout the euro area. In France the effects of the measures taken to contain the COVID-19 could cause a reduction in consumption of between 6 and 7% in the quarter. The ESI Economic Confidence Index developed by the European Commission recorded a robust decrease to 94,5 in March (-8,9 points compared to the previous value). The decline is led by the collapse of confidence in services to -2,2 (-13,3 points compared to February), followed by the decline in the index of retail sales, which fell to -8,3 from -0,2 previous year, and of the manufacturing sector, which fell to -10,8 from -6,2 (-4,6 points).
The decline was less severe in the construction sector (to 2,7 from the previous 5,4). The breakdown by country indicates that, among the major economies of the Eurozone, the ESI has strongly decreased in Italy (-17,6 points from the previous value) and Germany (-9,8 points from the previous value), while France (-4,9 points from the previous value), Spain (-3,4 points from the previous previous) and the Netherlands (-4 points from the previous value). The final data on consumer confidence for the month of March confirms the value of the flash estimate of -11,6, with Italy which, also in this case, recorded the worst drop.
