Italy’s economy battered in second quarter, but there are reasons for optimism

Italy’s economy contracted at a never-before-seen degree in the second quarter of the year, though analysts noted the negative growth was less severe than that seen in some other major European economies and that it could set the stage for an economic rebound in the second half of the year.

Italy’s National Statistics Institute, best known by its Italian initials ISTAT, reported preliminary figures Friday showing that the economy contracted by what it called an “unprecedented” 12.4 percent in the second quarter compared to the first three months of the year, and was 17.3 percent smaller between April and June of this year compared to the same period of 2019.

Even though the fall-off was severe, it was smaller than the contractions suffered by other neighboring countries.

The second quarter of 2020 included the most difficult period of the country’s national coronavirus lockdown, which entered into force on March 10 and was eased in stages starting May 4.

“What we are seeing is evidence of a severe economic reaction to the economic situation we have never before experienced,” Massimo Baldini, a finance professor at the University of Modena and Reggio Emilia, told Xinhua.

According to Stefania Tomasini, a partner and head of the analysis and forecasts division for Prometeia, a consultancy, the latest data is more or less in line with models produced by Prometeia analysts. She said the same models are predicting a 10-percent rebound for the Italian economy in the third quarter compared to the previous quarter and a further 2-percent recovery in the fourth quarter.

That still works out to a 10.1-percent contraction for the year as a whole, according to Prometeia’s analysis. That estimate is in line with estimates released over the last month from investment banks, consultancies, and multilateral organizations. Those range from a best-case scenario of a 9.2-percent contraction for the full year from REF Research, an analysis firm, to a full-year contraction of 11.2 percent, according to estimates from the European Commission.

“The big rebound in the third quarter is from a very weak comparison period, which is what we have just seen,” Tomasini said in an interview. “It is positive, but it will not get us back to where we were before the outbreak.”

Tomasini said Italy should continue its policy of creating financial incentives for companies and individuals as a way to foster more economic growth. That process was facilitated earlier this month when Italy was the biggest beneficiary of the EU’s 750-billion-euro (885-billion-U.S.-dollar) bailout package.

But Baldini suggested the government should start to spend a greater percentage of its stimulus spending on incentives for more private infrastructure investments.

Both Tomasini and Baldini said that as the country’s economy starts to grow again over the second half of the year, the government will be forced to face down some of the structural problems — including high taxes, high unemployment, and a rigid labor market — that economists were calling for before the pandemic arrived in Italy.

“The coronavirus has created more urgent challenges for the economy,” Baldini said. “But that only temporarily pushed the problems the economy was having before into the background.”