Italy falls 4.7% in the first quarter due to COVID and enters recession

Italy's gross domestic product (GDP) contracted 4.7% in the first quarter of the year due to the negative impact of the coronavirus crisis, a figure that added to the 0.3% drop in the last quarter of 2019 it puts the country into a technical recession.

The Italian National Institute of Statistics (Istat) published today the advance data for growth in the first quarter and said that Italian GDP fell by 4.8% year-on-year.

The entity will publish the final data on May 29.

This is a figure that represents the most drastic setback since the Istat began to collect information from this series in the first quarter of 1995 and is mainly due to the negative effects that the COVID-19 pandemic is having on the Italian economy.

"The GDP has undergone an exceptional contraction derived from the economic effects of the health emergency and containment measures," indicates the institute in its note, which highlights a significant decrease in added value in all production components, particularly accentuated in the case of industry and the service sector.

After the publication of these data, the Italian risk premium, which measures the differential between the 10-year bond and the German bond for the same period, rose to 237 basis points, compared to 225 at which it closed on Wednesday; and the yield on the 10-year bond rose to 1.85%, from 1.75%, which ended on Wednesday.

The coronavirus in Italy has left more than 27,600 dead and 200,000 cases of contagion since the emergency began on February 21 and in order to control these figures the Italian Government imposed in early March national confinement and the suppression of all non-essential productive activity, measures that will undoubtedly affect the country's growth.

The Italian government calculates that the GDP will fall 8% in 2020, but the Italian Prime Minister warned this Thursday in a parliamentary appearance that, if the virus persists and the emergency is prolonged, the fall could be up to 10.4% .

"The significant contraction of 8% (in 2020) contemplates a (hypothetical) drop in GDP of more than 15% in the first half and the possibility of a rebound in the second half of the year," Conte argued before the House of Deputies.

To mitigate the economic consequences, Italy has already approved a first stimulus package of up to € 25 billion to help families and businesses, and a public guarantee scheme that provides up to € 400 billion in business loans.

Now he is finalizing a second plan that the prime minister has advanced that will include 25,000 million euros in employment aid and income support.

Interventions worth 15,000 million are also being studied to partially cover the losses of small and medium-sized companies with public capital, which could translate into non-refundable support through liquidity disbursements or tax exemptions; and aid to the tourism sector and incentives for families to spend the summer in the country, which Conte did not quantify.

The Executive hopes to control this pandemic as soon as possible to favor the recovery of the Italian economy by 4.7% in 2021.

The macroeconomic picture of the Government foresees for 2020 that the deficit will shoot up to 10.4% of the GDP, while the debt will be at 155.7% of the GDP and the unemployment rate at 11.6%.

The Istat published this Thursday that the unemployment rate in Italy fell in March to 8.4%, compared to 9.3% in February, and that inflation stagnated in April in year-on-year terms, also according to its provisional calculations.

Laura Serrano-Conde


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