At a glance
Since the end of February, the COVID-19 epidemic has created a huge shock of uncertain duration. From the epicentre in Lombardy, the infection initially spread to the North and later on to the rest of the country. In the first part of 2020, economic activity fell sharply compared with the corresponding period of 2019. According to the quarterly indicator of regional economic activity prepared by the Bank of Italy (ITER), the decline has been more pronounced in the North, consistent with the early onset of the pandemic in this area. The outlook is still subject to uncertainty about the course of the pandemic, which has seen a sharp acceleration in infection rates in recent weeks. Since the beginning of October, the situation regarding the spread of COVID-19 in Italy has strongly deteriorated. The pressure on the healthcare system is rapidly increasing. The diffusion of the virus, at critical levels in all regions, has led the Government to adopt new restrictions on mobility and economic activities.
The crisis has worsened households’ economic conditions, especially the poorest ones, which are more widespread in the South. Household income has been sustained by the widespread recourse to forms of wage supplementation and to the measures for safeguarding permanent employment. The number of employed persons has dropped everywhere, particularly in the South, where the production structure is more oriented towards activities more exposed to the effects of the pandemic and the composition of employment contracts is more skewed towards temporary work. The constraints on layoffs and the exceptional use of wage supplementation have limited the impact of the crisis on permanent employment, which is more widespread in the Centre and the North.
With the onset of the pandemic at the beginning of 2020, loans to households slowed down sharply, particularly in the South. The interventions by the Government and the banking system in mid-March helped to support households’ ability to meet their financial commitments. The increased liquidity needs of firms resulting from the harsh reduction in activity were largely satisfied by the sustained credit growth, which began earlier in central and northern Italy in March and then involved the South in the summer. Public guarantees on new loans and expansionary monetary policy measures improved credit supply conditions in all areas of the country. Since the spring, the risk of credit quality deterioration has been limited by the direct (moratoriums and guarantees) and indirect (subsidies, contributions and wage supplementation) measures launched by the Government to support households and firms.
Interventions to support firms and households go hand in hand with those to reinforce the health system. To deal with the emergency, the Government has arranged for a gradual increase in both the staff and the number of beds in intensive and sub-intensive care units.