The pandemic has impacted the global economy
In the early months of 2020, the impact of the COVID-19 pandemic on production and aggregate demand was apparent in all economies; there will be a very sharp reduction in world trade this year. The deterioration in growth prospects has translated into a marked fall in stock market indices and into a sudden increase in volatility and risk aversion. The monetary and fiscal authorities have enacted strong expansionary measures.
Extraordinary monetary measures have been adopted in the euro area
The epidemic spread to all the euro-area countries. Inflation expectations fell, reflecting the drop in production and aggregate demand and the fear of permanent consequences for the economy. The ECB Governing Council took decisive action to ease monetary conditions, adopting a comprehensive package of measures, including more expansionary refinancing operations to support firms’ liquidity and a new pandemic emergency asset purchase programme. It also declared that it stood ready to use all of its instruments and to do everything necessary to support the economy.
In Italy the pandemic has a marked impact in the first quarter
The spread of the epidemic in Italy from the end of February and the measures adopted to counter it had significant repercussions on economic activity in the first quarter. Looking at the first three months of 2020, today GDP can be estimated to have fallen significantly. Extending the measures to contain the epidemic will likely cause GDP to contract in the second quarter as well, which is expected to be followed by a recovery in the second part of the year. The recourse to the wage supplementation fund is expected to have mitigated the impact on the number of people in employment.
Italy's economic and financial structure is more robust than in the past
The crisis has hit the production system at a time when there was already a slowdown in economic activity and a high level of public debt. Nevertheless, Italian firms and households are facing these difficult economic times with a far more balanced financial structure than at the onset of the previous recession. The net international investment position is broadly on balance. The capitalization and liquidity conditions of Italian banks are more robust than in the past.
Broad measures have been taken to support the economy
The Government has adopted a series of expansionary measures to support the healthcare system, and the households and firms affected by the emergency, by strengthening social safety nets, suspending tax payments, approving a debt moratorium on outstanding bank loans, and increasing public guarantees on new loans to firms. The European institutions have significantly broadened the range of instruments available to deal with the impact of the pandemic.
The speed of the recovery will depend on the effectiveness of the economic policies
Current scenarios regarding developments in Italy's GDP forecast markedly negative performance in the first half of the year, followed by an improvement in the second half and a marked recovery in economic activity in 2021; however, analysts' assessments vary significantly. How quickly the economy will recover will depend, apart from the course of the pandemic in Italy and abroad, on developments in world trade and in the financial markets, on the impact on some segments of the service sector, and on the repercussions on consumer confidence and income. The timing and effectiveness of the economic policy measures that are being introduced in Italy and in Europe will be crucial.
