No. 201 - The macroeconomic impact of the sovereign debt crisis: a counterfactual analysis for the Italian economy

This work analyzes the macroeconomic impact of the euro-area sovereign debt crisis on the Italian economy by estimating the contribution of the main transmission channels underlying the recessionary dynamics at play since the second half of 2011. By means of a counterfactual analysis undertaken using the Bank of Italy's quarterly econometric model it is estimated that (i) compared with a "no-crisis scenario", the GDP loss amounts cumulatively to around 6.5 percentage points in 2012-2013; (ii) the drop in investment stems mainly from a worsening of financing conditions for firms, while the contraction in consumption expenditure hinges chiefly on the negative impact on households' disposable income of the fiscal measures enacted in response to the crisis, as well as heightened uncertainty and lower confidence levels; and (iii) unlike the 2008-09 recession, during the sovereign debt crisis the major impact on economic activity stems from internal factors, which account for about two thirds of the downturn in GDP.