Italy’s Economy Shrank 5% Even Before Full Lockdown Impact

(Bloomberg) -- Italy’s economy shrank about 5% in the first quarter in an early taste of the economic damage wrought by the coronavirus pandemic, according to the Bank of Italy.

The reading in the central bank’s economic bulletin covers a period before the full impact of the lockdowns that have shuttered businesses and kept residents at home. There were no estimates for the second quarter or the full year, with the BOI saying much will depend on the “swiftness and effectiveness” of the Italian and European response.

Bloomberg Economics expects Italy’s economy to shrink more than 18% in the second quarter and more than 13% over the full year.

Italy halted all non essential economic activities on March 23. That alone shaves 0.5 percentage point a week from annual GDP, without counting indirect effects and the wider implications of the pandemic such as the slowdown of global trade, according to the BOI.

“The timing and intensity of the recovery will depend on the duration and geographic extent of the contagion, on which there is still much uncertainty, as well as on various internal and international factors, and on the effectiveness of economic policies,” the central bank said.

Still, it added that lenders and households face the recession from a stronger position than ahead of the sovereign-debt crisis, with more capital, abundant liquidity and low borrowing costs due to the European Central Bank’s monetary stimulus.

What Bloomberg’s Economists Say...

“Italy’s economy will probably end up more battered by the coronavirus pandemic than any other in Europe -- it was hit first and is likely to be locked down for longest.”

-David Powell, Read his ITALY INSIGHT

Containment measures have almost wiped out the turnover of most shops, except those selling food.While the impact on the labor market will be limited because of the extension of unemployment benefits, joblessness is set to rise in the second quarter as short-term contracts expire and seasonal hiring in sectors like tourism is frozen.

Tourism is particularly important for Italy, accounting for 13.2% of GDP and contributing about a third of its current-account surplus, the central bank said.

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