Debt / GDP ratio is frightening. Here’s what the data tell us


On Wednesday, the International Monetary Fund estimates on the future trend of global economies.

For theItalian economy it didn’t go well. The Washington-based organization estimated a 12.8% drop in GDP for 2020 in the wake of the COVID-19 pandemic against previous April estimates that gave Italian GDP a 9.1% drop.

In decided rise the GDP debt ratio, which is expected to grow to a level of 166.1%.

Debt in Italy on the rise

The Italian economic situation is not good according to IMF estimates.

The organization has in fact released its estimates on the macroeconomic fundamentals of global economies by designating a GDP drop of 12.8% for the Italian peninsula this year against previous April estimates which spoke of a -9.1% and a deficit / GDP of 12.7% with a previous estimate which stood at 8.3% of GDP.

This picture, which has not only affected the Italian peninsula, turns out to be much worse than the scenario relating to GDP growth recorded in the first quarter of last year.

GDP European countries first quarter 2020. 1 = Europe 2 = Italy 3 = Germany 4 = France 5 = Great Britain 6 = Spain

However, the GDP data for the first quarter of 2020, which partly consider the effects of COVID-19, also record a lower GDP for Italy.

The new data shown by the IMF go to draw a very pessimistic picture of the Italian economy, heavily strained due to the economic effects of the COVID-19 pandemic.

The lockdown and the consequent measures to be taken to mitigate the economic effects of the pandemic have caused in Italy:

  • a fort drop of the GDP equal to -12.8% for 2020. A figure higher than expected;
  • the increase in the relationship Debt / GDP Italian who will rise from 134.8% to 166.1% at the end of 2020;
  • a greater deficit / GDP which will rise to 12.7%;
  • consequences heavy on job market, already in a situation of strong precariousness.

The job market is the one who pays the most for it, although the data on the monthly unemployment rate for the month of May seem to say otherwise.

Unemployment rate European countries May. 1 = Europe 2 = Italy 3 = Germany 4 = France 5 = Great Britain

The restrictive measures implemented by the Conte government provided for the closure of economic activities. As a consequence, many Italian citizens have lost their jobs.

The unemployment figures of the main European countries also show that Italy had an unemployment rate close to the European average.

Italy is not the only country that will pay more for the expenses of the COVID-19 pandemic in terms of both GDP growth and the Debt / GDP ratio.

The worsening affects all Eurozone countries, from France that will jump to 125.7% of GDP this year, to Spain (123.8%) and to Germany where it will grow by 16 points on 2019 but remaining at 77.2% .

Although Italy is not the only one affected by the economic effects of the pandemic, the current economic situation is worsening the conditions of Italian public finance in relation to the conditions of public finance in other European countries.

The data show an Italian Debt / GDP ratio that has grown over the past 10 years against a decreasing trend shown by the Debt / GDP ratio of the European Union.

Italian Debt / GDP ratio vs European Debt / GDP ratio 2010-2020

In parallel, analyzing data on both European bond yields and data on Italian bond yields, it is seen that:

  • with the increase in Debt / GDP in Italy, the yield on Italian government bonds with a 10-year maturity drops;
  • the decrease in the European Debt / GDP ratio is associated with a reduction in the average yield of European bonds with a 10-year maturity and AAA rating.

    Average yield of European government bonds with 10-year maturity with AAA rating 2010-2020

Italian government bond yield due 10 years

This figure shows that Italy has a higher debt cost compared to the rest of Europe with particular reference to countries such as Germany or Belgium.

As a consequence, we will have that the economic effects of the pandemic could increase the gap between core countries and peripheral countries belonging to the European Union.

On the industrial side, despite the improving data of both the PMI index and the confidence of European consumers in the main countries of the European Union, the macroeconomic framework continues to paint a European Union still in a phase of economic contraction.

Analyzing the trend of the PMI index of the main European countries, it can be seen that although in May the values ​​recorded by the manufacturing index are still much lower than 50 and lower than the European average, Italy recorded a value of PMI index higher than countries like Germany or France.

Despite the positive figure for May in the period of March and April, the Italian PMI index fell more than both the other European countries and the European average.

PMI index European countries January-May 2020 Europe, Italy Germany France and Great Britain

On the foreign relations side, by analyzing the data relating to the balance of the trade balance you can see that:

  • Italy shows a balance of the trade balance negative for the month of April lower a France;
  • there decrease the balance of trade balance from the previous month was greater than that shown by countries like the France or the Germany.

Balance of trade balance period January-April 2020 countries: Italy, France, Germany and Spain

This figure, even if relative to the month of April, shows us once again the difficulties that Italy is facing in facing this crisis.

Expectations for the future of Italy. Is there a way out?

Although in previous crises the demand for services was less affected, with the lockdown the crisis in services was even greater than the manufacturing crisis and hit advancing and emerging economies in the same way.

However, those who pay the most will be the poorest countries such as emerging countries and southern European countries such as Italy and Spain, already heavily tested by an inefficient high public debt labor market and GDP growth estimates close to 0% even before the COVID-19 pandemic.

The data on the divergence on the growth of the Italian Debt / GDP ratio compared to the growth of the European Debt / GDP does not bode well for the recovery of the Italian economy compared to the European economy even if there are signs of recovery.

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