What damage has the virus done to the markets?
The spread of the virus, Visco adds, “has had strong financial repercussions, with a massive shift of funds towards activities deemed safer and a sudden drop in market liquidity. The prices of oil, shares and bonds of companies with a lower credit rating have collapsed. Sharp capital outflows have caused a large depreciation of emerging market currencies. The risks of instability have increased significantly. ”
The consequences on productivity
The immediate effects on world production activity “have been marked,” says the governor. And he warns about the uncertainty of the future: “Those that still register are difficult to evaluate, 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 the measures containment. Much will depend on the size and effectiveness of the support policies implemented in the various countries, from the trend of the trust of families and businesses and from how much this experience will change our behavior “.
When will shooting start?
The timing and ways of recovery after the coronavirus crisis are “difficult to predict”. Bankitalia traces two different scenarios for the Italian economy which show that the GDP for 2020 could drop between 9 and 13%. The second scenario is more negative but “not extreme”.
And if in the first quarter GDP registered a decline of the order of 5%, “the available indicators indicate an even more marked drop in the second”, underlines the governor of the Bank of Italy
What scenarios open up
In the “base” scenario, explains Visco, “the decline in production in 2020 would be 9%, higher than that suffered in two stages between 2008 and 2013; the decrease would be concentrated in the first two quarters of the year , with a partial recovery from the summer. Without the demand support provided by the budgetary policies defined so far, the contraction in economic activity would exceed 11%. The credit moratoriums and the guarantees on new loans to businesses drastically reduce the risk of further amplification effects, associated with a widespread liquidity crisis. In 2021 the product would recover approximately half of the fall. These estimates assume that the contagion continues to be contained at national and global level “.
In a second scenario “based on more negative, albeit not extreme, assumptions about the evolution of the epidemic, the extent of the decline in world trade and the intensity of the deteriorating financial conditions, the product would decrease by 13% this year and the recovery in 2021 would be much slower. ”
It’s not just the fault of the lockdown
In both scenarios, the fall in GDP in the current year “would be half due to the limitations associated with the suspension of activity and the consequent contraction in disposable income; the other half would reflect the slowdown in international trade and the substantial stop of international tourist flows “, concludes Visco.