Estimate the economic impacts of the devastating coronavirus emergency it is an exercise that cannot be renounced these days. To intervene in the debate, often and willingly catastrophic, is Valerio De Molli, managing director of the think tank The European House - Ambrosetti, which organizes a workshop every year at the beginning of September (will they succeed again this year?) on the shores of Lake Como with the participation of hundreds of Italian and international protagonists from the world of finance, business, politics and institutions.
"An appropriate comparison in terms of the spread of the epidemic - begins De Molli - would be given bySpanish flu of 1918-1919: a benchmark so distant from the current socio-demographic, geopolitical and economic reality as to make the construction of forecasting scenarios starting from the parallelism with archival episodes, little more than an intellectual exercise". So how to proceed? "Although the most important element at the moment is the medical-health aspect, the Coronavirus pandemic also brings with it heavy economic impacts, on which it is worth starting a reflection".
TOURISM
The first aspect on which the Ambrosetti leader reflects is the tourism, which as known activates 13% of our GDP, between direct impact and supply chains. “Every year – explains De Molli – in Italy over 60 million foreign tourists stay overnight in our hotels, eat in our restaurants, go shopping in our shops. It is now clear from these first weeks of the spread of the virus that this number will be significantly reduced in 2020: not a day goes by without reading about canceled flights, canceled bookings, canceled trips, cancellation of events, closing of bars, restaurants and shops" .
According to De Molli this blow, even if it were limited to only 4/6 weeks, is destined to definitively bring the economic activity of retail to its knees and, consequently, that of the upstream supply chains and will add a significant number of deaths and injuries which will impact on a sector already in difficulty which has already suffered, in 2019, the closure of over 5.000 businesses.
CITIZENS AND INVESTORS
The second variable is the reaction of citizens and investors. “I'll give you two figures to try and quantify the trust (or, in this case, the distrust) that pervades the global economic community,” explains Ambrosetti's CEO. “From January to February, the Chinese PMI index – which tracks expectations of expansion or contraction of the manufacturing market, expressed on a 0-100 scale where values below 50 indicate expectations of contraction – went from 50 to 35,7. This is an all-time low: in November 2008, in the midst of the Lehman Brothers crisis, this value dropped to 38,8. Another relevant indicator is the VIX Index, which measures the volatility of the American stock market. The spread of the virus in Europe caused the VIX Index to rise to values not seen since the Shanghai Stock Exchange collapsed in August 2015. In summary, the tension is visible both on the markets, between companies and between consumers”.
GDP
Therefore, keeping in mind the two variables discussed above, based on the estimates of The European House - Ambrosetti, a prolonged and lasting contraction would lead to a reduction in 2020 GDP estimated at between -2,5% and – 3,5%. "It is understood that a variation of the variables mentioned above could shift this interval - specifies De Molli -: for example, if the quarantine measures and other indications of the institutions were scrupulously respected, in the face of a very strong contraction in the first few weeks there would be an anticipated recovery in economic activity compared to the case in which indifference and indifference aggravated the spread of the virus. Also, this estimate is subject to the virus containment dynamics put in place in other countries: it is hoped that they will take an example from the Chinese and Italian cases, thus implementing management policies sufficiently in advance. If not, should there be a widespread global recession, the cascading impacts could be worse."
SOLUTIONS
What are the weapons that Italy and Europe have at their disposal? Clearly, monetary policy is not one of the levers that can be activated. We all remember Draghi's warnings, who invited - in unsuspecting times - the States to a more courageous fiscal policy, arguing that the ECB's quiver was now empty. “And therefore – says De Molli – we need to go back to looking at fiscal policy, to the role of the state in this crisis situation. The role of the state manifests itself in two distinct moments: short-term emergency fiscal policies, but also courageous policies capable of relaunching growth when all this is over. In the short term: it is essential to put in place a fiscal policy that does not choke VAT numbers, small entrepreneurs, traders, restaurateurs, and that favors the mobilization of investments as much as possible. Postpone payment of quarterly VAT, giving the possibility of spreading the 2020 tax over the following years, could be ideas that would reassure businesses and, more generally, the population".
According to De Molli, they could also be hypothesized important new European funding for health systems, to be combined with subsidies for temporary unemployment and to be combined with an important investment in the digitization and modernization of the country system, starting with digital payments. But the real challenge is the aftermath, with the Green New Deal: perhaps this emergency is therefore an opportunity not to be missed to transform our social and economic models once and for all and properly? According to De Molli, yes: “The mantra of The European House – Ambrosetti is: without investment there is no work, without work there is no growth, without growth there is no future. Never like on this occasion must we think about the long term, and start thinking about how to start again ".
