Italy’s Economy Faces Great Recession

Italy is the third-largest economy in Europe, with a gross domestic product (GDP) of about $2 trillion. As COVID-19 spreads throughout the country and locks down much of the nation’s business, Italy faces a worse downturn than a recession. It is up against an economic blow as bad as the one during the financial crisis.

Italy’s economy is made up primarily of industrial centers in the north of the country, a large number of companies that make high-end goods, and tourism. Manufacturing already has been deeply damaged. February marked the 17th month in a row in which manufacturing activity fell. The worst part of the COVID-19 outbreak is in the industrial north. Even if this part of the economy were better off, supply chain disruption would be a problem.

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It is hard to estimate what the spread of the virus will do to the manufacture of luxury goods. Much of this is done by companies smaller than industrial operations. Many of these retailers claim that online sales continue to be robust. That still means they face a sharp drop-off in store traffic, which is still the lifeblood of retail companies.

Tourism is likely to be the major casualty of the spread of the virus. It is among the nation’s largest producers of GDP. The UN Tourism Organization ranks Italy as the fifth most visited destination for travelers, with 62 million arrivals in 2018. Italy’s revenue from tourism is estimated at $49 billion.

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Italy faces two other structural problems. Sovereign debt is 135% of GDP. The country could struggle with repayment if the economy collapses badly enough. And Italy’s unemployment rate is already over 10%, worse than the U.S. number at the depth of the Great Recession. The highest number for the United States was 10% in October 2009. Italy faces a sharp rise in the figure in the next few months, and certainly, 12% is not out of the question. That will put pressure on the central government to provide assistance, which will push it further into debt. It becomes a vicious circle.

No nation faces a worse hit to its economy as COVID-19 spreads. Italy could be on a virtual lockdown for months. It has no solution to what is bound to be a horrible financial effect.

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