ITALY: Economic Consequences of COVID-19 and the Assessment of Relief Measures

In 2020, the outbreak of Corona virus in Italy is a real challenge for international community, European region and Italy, in particular. Since the outbreak of Corona virus pandemic, experts have always been trying to assess its effects on the Italian economy. Recently made predictions are worrying enough and prove a significant drop in the Italian economy.

By the results of a survey conducted in March, 2020, it has been cleared out that the enterprises in the foodservice industry are the most affected ones. Specifically, 99% of those enterprises have asserted the fact that their businesses have been hit by the outbreak of Covid-19. The second most affected sphere is transport. 88 percent of the enterprises of the sphere also indicate that the Covid-19 pandemic has affected their businesses as well.

In line with a prediction made in March, 2020, the GDP of Italy will decrease conditioned by the outbreak of Covid-19. Particularly, it has been assessed that by the end of the first quarter of 2020, GDP will decrease by 3 percent. By the second quarter of the year, it is highly possible that GDP will drop further by 5 percent. By some assessments, the GDP of Italy will drop by 6 percent compared to the previous year. Various assessments on GDP growth have been published since the outbreak of COVID-19, taking into account different scenarios. Calculations of the following figures have been made forecasting the termination of the pandemic by the end of summer 2020.

The spread of Corona virus in Italy with high speed has a direct impact on the volumes of E-commerce. In February-March, 2020, Italy saw a significant growth in online sales compared to the previous year. Particularly in March 8, E-commerce has grown by 90 percent compared to the data of the same period of the previous year. The growth of E-commerce in the given time is largely conditioned by the restriction of movement of population in Italy, by the probable risk of being infected and by other causes. According to an estimation made in March, 2020, is it possible that the unemployment rate will grow by 11.2 percent and it will decrease by 9.6 percent in 2021. In 2019, the unemployment rate in Italy was 9.9 percent.
Serious drop in separate sectors of the Italian economy is noticeable. In particular, during February 23-March 1 period the assessed damage of the film industry comprised about 7.3 million euro mainly because of the impact of Corona virus. In the course of the given week certain cultural events, football matches were canceled. The tourism sector has also been hugely damaged. It is hard to predict when this sector, fundamental for Italy’s economy, will embark on recovering even in the best scenario of developments.
It is interesting that despite overall drop in trade volumes, the retail trade sector has recorded a significant growth of consumption. One reason is that due to uncertainty, people prefer to get ready for the worst. And the best way is to buy food and first commodities. So, the international community is prone to behave in this way. It is expected, that Corona virus will entail a drop of Italy’s industrial productivity and Gross domestic product. However, some industrial sectors can have an increase of income. Inter alia, it has been estimated, that E-commerce, food and retail sales, trade of medical equipment will ensure the highest income. In March 16, the Government of Italy presented a relief package worth of 25 billion euro (1.1 percent of GDP) as an immediate response to the outbreak of COVID-19 to allow the strengthening of the Italian healthcare system, supporting subjects hit by the pandemic and bolstering the development of those sectors which are vital in this situation.

Four directions of the package of relief measures are as follows:

1. Strengthening the national healthcare system: 3.2 billion euro,
2. Preserving employment rate and income: 10.3 billion euro,
3. Supporting business and household economies: 5.1 billion euro,
4. Introducing tax incentives to both employees and businesses by suspending the payment of taxes: 1.6 billion euro.

To implement the first measure, the Italian Government has mobilized all resources necessary for the healthcare system, civil protection department and law enforcement bodies to help people affected by the disease and prevent, mitigate consequences of the pandemic. Specifically, the Government has immediately taken certain measures to hire medical and nursing staff, to improve services of healthcare units and involve private hospitals.

The Government has also improved the procedures of buying Personal Protective equipment. This, in addition to other results, allowed acquiring of 5000 additional ventilators and millions of safety masks. The delivery of such equipment is still in process and will be over by 45 days.

The preservation of workplaces and income is of great importance to protect families and businesses from economic consequences caused by the pandemic. To implement the second measure, the Government has provided 10.3 billion euro to strengthen social security system, in particular, financial assistance to employees of all industrial spheres, including the enterprises with less than five employees. This measure also encompasses about 5 million people, who have seasonal, not permanent jobs. Besides, under this measure, families, whose vital needs are affected by the Corona virus outbreak, can also apply to suspend the payment of their mortgage loans. It is also envisioned, in the framework of this measure, to extend the duration of the paid vacation from 3 to 12 days (in March and April) for those, who take care of a family member with disabilities. Additional resources will be allocated to grant 1000 physicians and extra working policemen. These measures are aimed at saving the income of employees, and simultaneously, allowing the companies to reorganize workplaces to provide necessary conditions for the health and security of their employees. In addition, in March 14, the Government, trade unions and associations of employers signed a protocol, which defines several measures to meet maximal criteria for the safety and health of the employees. By the implementation of the agreement, it is predicted to minimize the effects caused by the pandemic on economic activities, at the same time, guarantee the equal implementation of the security requirements throughout the state, as it is defined in healthcare bodies.

On the sidelines of the 3rd measure the Government granted additional 5.1 billion Euro to support loans’ offer. Small and mid-size businesses will have the opportunity to borrow loans.

The package consists of the following tools:

• Provision of privileged conditions for small and mid-size enterprises to pay their loans, including mortgages.
• Improvement of guarantee funds of small and mid-size enterprises. The size of the fund was enlarged by 150 percent, increasing from current 40 billion euro to more than 100 billion.
• Incentives for financial and non-financial companies to reduce risks caused by delayed payments of debt owners and to implement tax obligations.

Under the fourth measure, the Government suspended the payment of certain taxes to support taxpayers and introduced tax incentives and loans to bolster economy.

The main measures are the followings:

• In March, the payment of taxes and security insurance contributions was suspended for a large number of taxpayers. This includes all the businesses with a turnover less than 5 million euro, as well as taxpayers, whose businesses are heavily affected by the state of emergency (for example, tourism, transport, restaurants and cafes, cinemas, etc). These tax payments can be done within maximum 5 years after the extension deadlines are expired.
Tax control, collection procedures, court examination and the implementation of tax obligations have been suspended by June.

• Bonus for workers: an extra €100 will be paid to workers, who have to carry out their jobs in risky conditions.
• Commercial rents: a tax credit equal to 60% of rent amounts for the month of March has been introduced for small shops which were closed because of the state of emergency.
• Extra measures to support central and local governmental bodies, including municipalities, cost about 4.5 billion euro.

The Impact of the Measures on the Stability of State Budget

The implementation of the first package will entail an increase of net loans of GDP by 1.1 percent (approximately 20 billion) and temporary increase in budget deficit, which has already been approved by the two houses of the Italian parliament with the absolute majority.

Financial resources, which in line with the annual plan of the state budget were to be granted to secondary dimensions, now are to be redistributed among those branches which are of pivotal importance to overcome the crisis.

Debt/GDP correlation has been stabilized in recent years. However, in 2020, it will increase due to the larger deficit necessary for emergency planning. In the next economic and financial document, the Government will present a policy scenario consistent not only with the strategy to revitalize the Italian economy, but also with the aim of the decrease of debt/GDP correlation during a quarter planning period.

Situational Solutions in the Context of the EU Activity

The measures conducted by the Italian Government are compatible with the framework of European stabilizing measures. In this context, European Central Bank largely supports common and coordinated operations with Eurozone Governments and EU Institutions. It also has undertaken package of measures to support families and businesses, to provide conditions for funding the banks by enabling normal financial influx to the real economy of the country.

Europe tries to respond rapidly and flexibly to the developments, but only the results will show the efficiency of the taken steps. Generally, the Government is resolute in carrying out all the necessary measures to efectively overcome current challenges and rebuild trust towards regional states and economies.

According to Executive Management Company, one fact worth mentioning is that at the beginning of the pandemic China, non-EU member states offered support to Italy. This fact underscores that in spite of being highly integrated structure, EU is still not able to provide fully stable atmospere for mutual understanding and cooperation between member states. Executive Management Company concludes that Italy, being the first European nation to be affected by the Coronavirus pandemic, has served as an example for each country. Accordingly, all appropriate measures should be taken during the first phase of the pandemic, instead of leading nation’s economy to collapse and then trying to rebuild it.

Executive Management Company finds that in Italy the measures have been taken belatedly. Why? The problem is that Italy intiated providing financial means to hire additional medical and nursing staff only in mid Mirch, when it has already become a challenge to the region by the number of deaths and infected patients.

The next problem is that there has been no plan to assist agrigulture field among the above mentioned packages. Thus, according to the Executive Management Company these measures can have positive results in long term, but in mid-term and short-term planning, there is a little hope to have tangible results. This is because in the context of food security the most relevant field is not included in any assistance package.


Executive Management


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