Prometeia and S&P publish their estimates of the economic impact of the COVID-19 outbreak
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After the economic crisis of 2008, Italy will now leave a substantial period of growth behind due to the coronavirus outbreak in the country. This is Prometeia's less than positive forecast for the Italian economy, which will see a significant collapse in 2020.

COVID-19 forecasts for the Italian economy

In the context of the deepest global recession since the Second World War, Prometeia states that Italy risks being one of the most fragile states due to its service and tourism sector characterised by small and medium businesses, and a public sector with debt levels which are already high. No country will be able to emerge from the crisis on its own, a strong and timely plan is needed at European level to deal with the emergency and relaunch economic activity, not only from a financial point of view, but also in terms of real growth.

In the baseline scenario, assuming a slow and selected removal of the anti-accounting blocks from the beginning of May, the contraction of the Italian GDP in 2020 will be at least 6.5%: in just one year, a recession of equivalent magnitude to the two-year period of 2008-2009. Prometeia estimates in the first two quarters of the year a GDP reduction of more than 10% compared to the pre-crisis situation, with very large sectoral differences: from -10% in manufacturing to -27% in tourism-related services, and up to -16% regarding transport services and entertainment activities.

Despite the fiscal measures already announced (more than two percentage points of GDP in total this year) - substantial but limited by the high public debt - the depth of the recession and the slow recovery will only further weaken the country's productive capacity and public finances. In Prometeia's base scenario, Italy would find itself in 2022 with a GDP level still more than 2 percentage points below the 2019 level, with sovereign debt nailed to 150%.

Coronavirus: the impact on the international economy

In this context, macroeconomic stability will only be ensured in a context of greater burden-sharing at European level of the health crisis and its effects. The symmetrical and exogenous nature of the shock requires a common response both to deal with the increase in expenditure linked to immediate needs and to support the recovery of the real economy. As mentioned, no country can emerge from this crisis alone. The financing of these expenses by European funds would make it possible to reduce the burden on national budgets and also to take a step towards creating a secure continental asset that could favour the diversification of risk in financial systems. Failure to follow this path would risk weakening the European project, putting its future at risk.

Although the outbreak of the crisis originated ten years ago in finance, today the nature of the shock is real (blockades on activities and quarantine). In this first phase, services are particularly affected in advanced countries, with more workers than manufacturers and where lost sales can hardly be recovered. The real and global nature of a crisis that starts with services entails very strong multiplier effects linked to international trade, which makes the reduction of activities particularly intense.

Despite all the uncertainties related to the duration and intensity of closures, and the subsequent reactivity with which the different countries will try to recover, Prometeia estimates a recession in the world economy (-1.6%) in 2020, widespread in both industrialised and non-industrialised countries, where only China will avoid a decline thanks to the positive upturn already demonstrated in the second half of the year. By way of comparison, in the "Great Recession" of 2009, the overall fall in activity was 0.4%. However, the attraction of Beijing and the assumption of a return to "close to normal" by the end of the year for all industrialised countries is based on the forecast of a fall in world trade of "only" 9.4%. By 2021, the global economic rebound is expected to reach 4.6%.

Finally, in the United States, where an unprecedented 2 billion dollar package of measures (9.3% of national income, more than the level of Italy's GDP) is being approved to help businesses and families throughout this crisis: GDP in 2020 is though to fall by 2.5%, then recover by 3.6% the following year.

S&P forecasts for the European economy 

The euro zone, according to S&P Global Ratings, will face a recession representing a 2% drop in GDP in 2020, equivalent to 420 billion euros of real GDP due to the pandemic. However, everything is subject to change, as the pandemic could last longer than expected, depressing the Eurozone's GDP by up to 10%. However, in 2021 a rebound of +3% is expected, with an additional +1.5% in 2022 and 2023.

For the time being, the rating institution S&P is focusing on the fiscal and monetary measures, as well as economic policies in general, and states that they will be the key to confronting the economic emergency that will follow this period. However, although all countries in the European Union have adopted similar measures, not all will experience the same speed of recovery due to the different fiscal "boosts" that their respective economies will be able to put together. In particular, France and Germany have more funds to finance unemployment than Italy and Spain, countries which also have a greater number of independent small and medium-sized enterprises. These will be the companies most affected by the economic shock, meaning that the French and German economies are therefore more likely to recover more quickly than the others.