Coronavirus Could Send Italy Into Recession, Official Warns
(Bloomberg) -- Italy is in danger of missing its already unambitious growth targets for 2020 because of the coronavirus outbreak, according to a senior government official.
“The impact of the coronavirus risks being significantly negative on the global economy and also on Italy,” Deputy Finance Minister Antonio Misiani said in an interview in Rome on Wednesday. “It’s become more complicated now to reach the government target of 0.6% growth in the budget.”
The outbreak has come at a difficult time for Italy’s economy. Output unexpectedly shrank 0.3 percentage point in the final quarter of 2019, ramping up pressure on the fragile coalition government of Prime Minister Giuseppe Conte. Bank of Italy Governor Ignazio Visco warned of “significant” downside risks to the country’s outlook.
In fact, the country could be heading for its fourth recession in little more than a decade.
According to the European Commission’s economic forecast published on Thursday, Italy’s GDP will grow only by 0.3% this year, down from a previous prediction of 0.4%, partly because of a negative carry-over effect. “Downside risks to the growth outlook remain pronounced,” it said.
Given the subdued global outlook, Misiani said he doesn’t know whether it would be possible to recover momentum and for the economy to even flat-line in the first quarter of 2020. A country is usually classified to be in recession when it contracts for two consecutive quarters.
“All of our indicators point to a pick-up,” Finance Minister Roberto Gualtieri said on La7 television Thursday. “In January, industrial production and GDP should rise,” he said, adding that the government is “confident” of an economic recovery.
“China is Italy’s third-largest supplier, many Chinese tourists come to Italy” and purchase significant quantities of its luxury goods, Misiani said.
The deputy minister also highlighted positive developments such as the narrowing of spreads and the record demand for the country’s debt. Consumer confidence increased in January.
Italy’s 10-year yield spread over Germany -- a key gauge of political risk in the country -- fell to 126 basis points Thursday, the lowest level since May 2018, reflecting the country’s improving political stability.
He vowed that the government would “redouble efforts to relaunch growth with income tax reform, carrying out the government’s public investments plan, and quickly helping the companies most exposed to the Chinese market.”
Still, Conte’s second coalition, which was sworn in in September, continues to quarrel. Tensions between the Democrats, the anti-establishment Five Star Movement and the small Italy Alive party contaminate a range of issues from economic policy to judicial reform.
“The government can and must keep going, it needs a change of pace, an acceleration especially on economic issues and on jobs,” Misiani said. “That is the real acid test for whether this government can achieve results.” Misiani said this would become clear by April.
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