Italy Plunged Into Recession by Investment, Consumer Slump

Italian companies slashed investment and consumers cut back on spending during the coronavirus lockdown in the second quarter, sending the economy into a record contraction.

Figures from statistics office Istat showed household spending fell 11.3% in the period, and exports dropped 26.4%. Investment plunged 14.9%, with transport investment down about 20%. The economy shrank 12.8% in the three months, slightly worse than an initial estimate.

Italy Plunged Into Recession by Investment, Consumer Slump

Since then, the economy has shown signs of improvement. “Italian families’ spending in July and August came close to pre-crisis levels, surpassing them in some components in August,” Italian Finance Minister Roberto Gualtieri said in a statement. “Industrial orders and expectations, while inferior to normal, have risen further in the two months.”

A strict national lockdown in Italy, the original European epicenter of the virus, took a heavy toll on the economy. The government forecasts that GDP will contract 8% in 2020, a projection that looks optimistic next to the 10% predicted by economists, and the European Commission’s 11%.

There’s also been a huge fallout on Italy’s public finances after the government ramped up health and stimulus spending to counter the pandemic. Debt was already projected to exceed 150% of GDP this year even before the latest tranche of spending. The government has so far approved about 100 billion euros ($119 billion) in stimulus to try to save the economy.

Some of that money will come from Europe, with Italy expected to receive the biggest share of a 750 billion-euro recovery fund approved by European Union. Italian Premier Giuseppe Conte told the Senate in Rome last month that the country will benefit from total funding of 209 billion euros in grants and loans under the package.

©2020 Bloomberg L.P.

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