Italy’s Visco Sees Recovery Even as Covid Weighs on Growth

The Bank of Italy sees an increase in economic output in the Spring even as continued fears over coronavirus infections weigh on a recovery in consumer spending, governor Ignazio Visco said in a speech.

A spring recovery “hinges crucially upon the progressive attenuation of the epidemic over the course of the coming months,” Visco, who is also a member of the European Central Bank’s governing council, said at the annual Assiom-Forex event. “The surveys conducted by the Bank of Italy at the end of November suggest that consumption expenditure is being held back by fears of infection, besides the precautionary motive based on economic and financial considerations.”

Italy has been hard hit by the coronavirus pandemic and has suffered more than 90,000 deaths from Covid-19. The fallout from the virus has caused an economic slump far deeper than among its European peers despite more than 130 billion euros ($157 billion) in stimulus pumped in by the government. Output fell 8.9% last year, according to the national statistics institute and debt has risen to near 160% of gross domestic product.

Consumer Spending

Bank of Italy research shows that the share of households that expect to spend less than their annual income in the next 12 months has increased, with about 20% of families that expect a decrease in income saying they will save. There is, however, a need to start thinking about how to reduce support measures without damaging families and the economy, Visco said.

“The necessity of guaranteeing protection for workers and preventing healthy firms from exiting the market must be reconciled with the need not to hinder the automatic reallocation of resources toward the firms and sectors with the best growth potential,” he said. “This process is indispensable to foster the efficiency gains that are fundamental to economic growth.”

Visco also said low interest rates and a good use of European Union recovery fund money will help boost growth and will be key in managing Italy’s finances. Italy is set to receive up to 209 billion euros in EU funds in the next few years.

“Fiscal policies must have the clear medium-term objective of guiding the debt ratio back to a downward slope,” he said.

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