Italy sees its virus-hit economy falling 8% in 2020: sources

Italy sees its virus-hit economy falling 8% in 2020: sources

© Reuters. Spread of the coronavirus disease (COVID-19) in Rome

By Giuseppe Fonte and Gavin Jones

ROME (Reuters) – Italy’s Treasury expects the economy to contract by around 8% this year, two sources close to the matter told Reuters, underscoring the negative impact of the nationwide lockdown imposed to fight the coronavirus outbreak.

The euro zone’s third-largest economy should regain ground next year, with GDP rising by 4-4.5%, the sources said, asking not to be named because of the sensitivity of the matter.

Estimates are based on an unchanged policy scenario and do not include the positive impact of a stimulus package to be approved later this month, which one of the sources said would be worth more than 70 billion euros ($76.06 billion).

The government of the anti-establishment 5-Star Movement and the centre-left Democratic Party (PD) will update its growth and budget goals this week, probably on Wednesday.

The Treasury declined to comment on this story.

Last September the government targeted a GDP rise of 0.6% in 2020 and 1% in 2021, but the COVID-19 pandemic looks set to push Italy into its worst recession since World War Two.

Deaths from the infection in Italy rose to more 23,600 on Sunday, the second-highest tally in the world after the United States.

Italian authorities have banned until at least May 3 all non-essential businesses including car, clothing and furniture production.

The sources said the economic outlook remained highly uncertain and the Treasury’s estimates could possibly be tweaked before they were finalised.

The International Monetary Fund last week forecast Italian GDP would fall 9.1% this year while investment bank Goldman Sachs (NYSE:) has forecast a drop of 11.6%.

The deep recession and the extra government borrowing were set to drive Italy’s budget deficit close to 10% of national output this year, a senior official told Reuters on Thursday.

Growth projections for next year incorporate the negative impact of an increase in sales tax due to kick in next January but which the government has promised to avoid.

A third source told Reuters Rome was considering a plan to scrap that tax increase without offsetting it with alternative levies and spending cuts.

The European Union has already suspended EU budget rules, giving governments fiscal leeway to help their economies better withstand the health emergency.

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