When is the economy likely to collapse?

Coronavirus: Economic Forecasts in Italy and Worldwide 2020-2022

After the economic crisis of 2008, Italy had to say goodbye to the growth phase due to the coronavirus outbreak. This is Prometeia's less positive forecast for the Italian economy, which will see a significant collapse in 2020.

Forecasts for the Italian economy

In the context of the worst global recession since the Second World War, the consulting firm Prometeia assumes that Italy due to the service and tourism sector, which is dominated by small and medium-sized enterprises, and a public sector with pre-existing debts one of the most fragile states could be. No country will be able to come out of the crisis on its own. A strong and timely plan is needed at European level to deal with the emergency and to get economic activity going again not only from a financial point of view but also in terms of real growth.

In the base scenario, the Decline in Italy's GDP in 2020 assuming a slow and selective lifting of the contact block from the beginning of May be at least 6.5%: This would amount to a one-year recession on the scale of the 2008-2009 biennium. Prometeia anticipates a decline in GDP of more than 10% in the first two quarters of the year compared to the pre-crisis situation with very large industry-specific differences: from -10% in manufacturing to -27% in tourism and -16% in relation to Transportation services and entertainment activities.

Despite the previously announced tax measures (more than two percentage points of GDP in total this year) - which are not substantial, but are only possible to a limited extent due to the high level of public debt - the severity of the recession and the slow recovery will only further increase production capacity and public finances weaknesses. In Prometeia's baseline scenario, Italian GDP would hit levels in 2022 that would still be more than 2 percentage points below 2019 levels, with national debt hitting 150%.

Coronavirus: Impact on the international economy

In this context, macroeconomic stability is only guaranteed in the context of greater burden sharing of the health crisis and its impact at European level. The symmetrical and exogenous nature of the shock requires a joint response to both manage the surge in spending related to immediate needs and support the recovery of the real economy. As already mentioned, no country can emerge from this crisis on its own. Financing the expenditure from European funds would make it possible to ease the burden on national budgets and to take a step towards the creation of a safe continental fund that could help diversify risk in financial systems. If this path is not followed, there is a risk that the European project will be weakened and its future endangered.

Although the financial crisis began ten years ago, the type of shock is real today (Activity restriction and quarantine). In this first phase, countries with a high proportion of services are particularly affected, as these companies can hardly make up for their sales losses in the second half of the year. A crisis that initially affects the service sector brings with it very strong multiplier effects associated with international trade, which makes the reduction in activities in this sector particularly critical.

Despite all the uncertainties about the duration and intensity of the closings and the subsequent resumption of economic activity with which the various countries will recover, Prometeia expects the global economy to recession (-1.6%) in 2020which affects both industrialized and non-industrialized countries, with only China able to prevent the economy from shrinking due to the slight recovery already shown. For comparison: In the great economic crisis of 2009, the total decline in activity was 0.4%. The attraction of Beijing and the assumption that economic activity in all industrialized countries will have "almost normalized" again by the end of the year, however, is based on the forecast of a decline in world trade of "only" 9.4%. Global economic growth is expected to recover by 4.6% by 2021.

Finally, an unprecedented $ 2 billion package (9.3% of national income, more than Italy's GDP) was approved in the United States to help businesses and families through this crisis. However, GDP in 2020 is projected to decrease by 2.5%, then recover by 3.6% next year.

S & Ps forecasts for the European economy

The Eurozone will face a recession, according to Standard & Poor's, representing a 2% drop in GDP in 2020, which translates into real GDP of 420 billion euros due to the pandemic. However, everything can change there the pandemic longer than expected persist and the GDP of the euro area by up to Could push 10%. However, a + 3% recovery is expected in 2021, with an additional + 1.5% in 2022 and 2023.

Currently, the rating agency S&P focuses on fiscal and monetary policy measures as well as economic policy in general, stating that they will be the key to tackling the economic emergency. While all countries in the European Union have taken similar measures, not all will experience the same rate of recovery due to the different fiscal stimuli that their respective economies can put together. Especially France and Germany have more resources to finance unemployment than Italy and Spain, Countries with a greater number of independent small and medium-sized enterprises. These will be the companies hit hardest by the economic shock, which means the French and German economies are more likely to recover faster.