Bank of Italy: “Unprecedented crisis”


Bank of Italy: Unprecedented crisis

“Since the start of the year the rapid worldwide spread of the new coronavirus has caused a very serious health emergency, millions of people have been affected, hundreds of thousands have lost their lives. The containment of the pandemic made it necessary to introduce drastic measures to limit personal freedoms of movement and social interaction, to suspend teaching in presence in schools and universities, to temporarily close many production activities. It is an unprecedented crisis in recent history, which puts a strain on the organization and stability of the economy and society “. This is the scenario outlined by the Governor of Bankitalia, Ignazio Visco, at the beginning of his final considerations.

GOVERNMENT – “The Italian government has moved according to the same priorities that have guided the interventions at an international level, focusing on the response capacity of the health sector and on aid to workers, families, businesses”, I underlined. “Between March and May, measures were launched that increase this year’s public deficit by around 75 billion, 4.5 percent of GDP,” he says.

“The social protection system, already rationalized and strengthened after the sovereign debt crisis, has been temporarily strengthened, with the extension of the possibility of resorting to wage integration treatments and the extension of the duration of unemployment benefits; support for self-employed workers, specific transfers for categories of workers only partially covered by social safety nets and for families in difficulty “, continues Visco.

“To these interventions – he adds – others are added in favor of companies; in particular, non-refundable transfers are envisaged for smaller ones that have suffered a sharp reduction in turnover. To support the liquidity of small and medium-sized enterprises and families were given the opportunity to take advantage of moratorium on laws in place, to which are added those implemented through voluntary agreements “.

SHOOTING – Visco underlines how it is now difficult “predicting the timing and intensity of the recovery”. “Uncertainty is strong today; it affects not only the evolution of the pandemic but also the effects on our behavior, on consumption habits, on savings decisions. One wonders which new needs will emerge and which customs will be definitively overcome. And we wonder about the possible consequences, beyond the short term, for the organization of the company and the productive activity “.

“The immediate effects on world production have been marked. Those that will continue to be recorded are difficult to assess, they will primarily reflect non-economic factors such as the evolution of the infections, with the possible re-emergence of new outbreaks, and the duration of containment measures. Much will depend – explains Visco – on the size and effectiveness of the support policies put in place in the various countries, on the trend of the confidence of families and businesses and on how much this experience will change our behavior. disinflationaries could be strong and persistent, a sign of the drop in short and long-term inflation expectations in the main countries “.

The depth of the recession – warns Visco- it could be amplified by new market turmoil, by the worsening of the protectionist tendencies that emerged in the last two years, by the spread of insolvency cases in economies to an extent that triggers systemic crises in the financial sector “.

WORK – According to Visco, moreover, “the recession will have significant repercussions on the labor market. Compared to other countries, the effects on employment are contained in Italy by the suspension of layoffs and by the widespread use of the Wages Guarantee Fund, which has so far involved about seven million workers, almost half of the private employment employed. ” labor market participation has fallen by nearly 300,000 units, discouraged by the worsening economic outlook and the limitations on mobility and manufacturing activities that persist in some sectors, “he says.

“In these conditions – continues Visco – the unemployment rate (which fell to 8.4 percent in March, almost a point less than in February) gives a very attenuated image of the real impact of the epidemic. economic activity has reduced new employment opportunities, particularly affecting young people who for the first time appear on the job market, those who are habitually engaged in seasonal activities, with fixed-term or apprenticeship contracts. activities traditionally carried out by self-employed workers and irregular work, which is still too widespread in our country “. “In the short term – underlines Visco – the social safety nets counter the impoverishment of large sections of the population and the widening of economic differences, increased by the greater presence of low-income workers in the sectors most affected. Limits in the availability of liquid financial assets among households with lower incomes they can amplify the consequences of the shock, leading to a significant increase in the number of families who are unable to maintain acceptable living standards “.

GDP – Faced with a large and rapidly evolving crisis such as the one opened by the coronavirus, it is difficult to estimate the economic fallout, at any level: for example “in the scenario hypothesized by the International Monetary Fund in the first days of April, world trade would decrease by 11 per one hundred in 2020 “with a global GDP that” would drop by 3 per cent, with a concentrated drop in the first half “, underlines Visco acknowledging however that” the intensity of the subsequent recovery remains very uncertain “. Therefore “the risks on this scenario, which already foreshadows trends worse than those recorded during the global financial crisis, are oriented downwards”. The uncertainty also concerns the forecasts for the recession that will hit the Eurozone: the ECB’s projections “will be published in a few days” while “according to the evaluations of the European Commission the drop in production would be close to 8%”, in line with the average of the estimates ranging from 5 to 13 percent.

ECB – “The extent of the interventions so far established” by the ECB to counter the negative effects of the pandemic is unprecedented. Eurotower “first strengthened existing asset purchase programs, raising their volume to 360 billion until the end of 2020 (APP), and then introduced a new, extraordinary one, specifically designed to deal with the consequences of the pandemic emergency “, says Visco highlighting the extent of the Eurotower interventions, which consequently boosted the purchases for the share that belongs to Via Nazionale.

In fact, within the framework of the App “in March and April the Bank of Italy raised the rate of investment in Italian government bonds to over 10 billion a month. Added to these were further interventions, of an even higher amount, in the context of “Pepp. But in the face of this crisis, the Governing Council of the ECB – Visco recalls – “has announced that, if necessary, the amount of the extraordinary purchase program will be increased and its composition revised. We are ready to make use of the other tools available to us. to ensure that all sectors of the economy can benefit from accommodative financing conditions and a wide availability of funds and to ensure that inflation is steadily moving towards the target of growth in consumer prices close to 2% “.

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