Italy’s New Stimulus May Not Be Enough for Battered Economy
Italy is trying to prop up its battered economy with a second stimulus package worth 55 billion euros.
(Bloomberg) -- Italy is trying to prop up its battered economy with a second stimulus package worth 55 billion euros ($60 billion). It may not be enough.
Prime Minister Giuseppe Conte’s government approved the much-delayed measures on Wednesday night in a bid to reduce the economic impact of the coronavirus pandemic. The plan focuses on liquidity for businesses and aid to families hurt by over two months of a nationwide lockdown. A 25 billion-euro package was passed in March.
The European Commission forecasts that Italy’s economy will shrink 9.5% this year while Bloomberg Economics sees a 13% contraction. With tax revenue collapsing and a desperate need for stimulus, the country’s mammoth debt will rise to well over 150% of gross domestic product, the Commission said.
“We estimate the Italian fiscal response will still be 65 billion euros short of plugging the income gap caused by the downturn,” said David Powell, euro-area economist at Bloomberg Economics. “Add in the delay in deploying it and scarring to the economy looks inevitable -- firms will go bankrupt, jobs will be lost and this damage will be hard to reverse.”
Italy High Frequency Data Dashboard
Tensions in Conte’s coalition have led to weeks of delays for the spending plan originally dubbed the “April Decree.”
The premier had to mediate between the parties in his government, including the anti-establishment Five Star Movement -- the coalition’s largest force -- and the small Italy Alive party of ex-Premier Matteo Renzi. Coalition parties clashed over a plan to grant temporary status to illegal immigrants, especially in the agricultural sector, and about how much money to allocate for measures such as emergency income for the poor.
Italian bonds traded little changed early Thursday with the 10-year yield at 1.80%, setting it on course for its first weekly gain in two weeks.
The decree also includes a holiday bonus of 500 euros for mid and low income Italians, and some 210 million euros for the the arts and the publishing industry.
State lender Cassa Depositi e Prestiti SpA is set to play a role in helping prop up larger companies, with funding of some 50 billion euros –- financed through state-guaranteed bond issuance -- to purchase bonds, take part in capital increases or buy shares of companies with more than 50 million euros in revenue.
Apart from the size of the promised help, the issue for businesses struggling to stave off bankruptcy is how quickly the assistance will actually materialize. The government and banks blame each other for slow delivery of relief.
Two months after the government promised to unlock as much as 740 billion euros of subsidies, government guarantees and private lending, just a fraction of that sum has been received by firms and families. Of some 300,000 companies that asked for emergency unemployment benefits for their workers, less than one in ten has received them.
New government rules include measures to ensure that banks can grant state-backed loans worth 25,000 euros to small companies in 48 hours, Finance Minister Roberto Gualtieri told La7 television on Wednesday.
The decree is a “significant effort by the state and its public accounts to provide financial support to SMEs and citizens that have been hardest hit by the coronavirus outbreak,” Mediobanca analysts wrote in a note Thursday. “We continue to believe that the trigger for a credible reconstruction, beyond the suspension of the Stability Pact, is a coordinated European fiscal response.”
Gualtieri’s predecessor Giovanni Tria was unimpressed by the new package.
“We can’t try to resolve all of Italy’s woes today,” Tria told an online forum before the cabinet meeting. “What they’re doing here is a ‘dream budget law’ instead of targeted measures.”
©2020 Bloomberg L.P.