Italy’s Coronavirus Economy: New Disease, Same Problems
Italy’s economy has long had serious structural issues which the coronavirus pandemic has only intensified. First, Italy’s economy in the last decade has had a poor track record of growth, with the GDP shrinking in 2012-2014 and not at any point exceeding 2% annual growth since. GDP was predicted to grow at .6% going into 2020, although it is safe to say that the coronavirus will lower that growth rate, potentially plunging Italy into a recession (Trading Economics, 2020). The Italian GDP per capita, meanwhile, is the same today as it was 20 years ago; simply put, the Italian economy has been stagnant, especially in the last two decades. Part of this is probably linked to further integration with the EU, specifically the adoption of the Euro in 2002, which meant that Italy could no longer devalue its currency against Germany’s. With Italy’s other institutional issues, such as poorer education and corruption, Italy simply has a harder time competing on the international stage.
The second major issue of Italy’s economy has been government debt, which has been above 130% of national GDP since 2014. It is the second highest government debt to GDP ratio in Europe, behind only Greece. This high debt and government spending is not a new problem for Italy, and has led to conflicts between Italy and the EU in the past—perhaps most notably, controversial Prime Minister Silvio Berlusconi was removed from power by EU-sympathetic President Napolitano in 2011 and replaced by an EU technocrat, after Berlusconi refused to meet the International Monetary Fund’s (IMF) austerity demands for a bailout. The government has since tried to lower expenditures, although the high debt remains. With the coronavirus threatening to turn many bank loans of small businesses bad, there is worry that banks will respond by trying to cash in government bonds, which, given the high level of government debt, may necessitate another bailout from the EU. The government’s response had been lowering its government expenditures. About three weeks ago, in response to the coronavirus, the government passed a 25 billion euro stimulus bill, which included subsidies for the self-employed (a group which represents 23% of employment, an unusually high number for a developed country) and mortgage delays for self-employed and those who have lost their jobs (Goodman, 2020).
This brings us to another issue in Italy’s economy which has plagued it for years along with the poor growth: the high unemployment rate, which has hovered around 10% for the last decade. Youth unemployment is particularly concerning; it stood at 29% in December 2019 and has been as high as 40% in the last decade (Trading Economics, 2020). Meanwhile, The Eurozone average for youth unemployment was at 15.6% (NPR, 2020). This problem has contributed to the massive numbers of youth who have left Italy for places like Germany in search of more secure employment. Unemployment numbers also do not tell the full story, since Italy has a large number of temporary workers who work on short-term contracts with fixed end dates. This means that those who do have work are often insecure in the best of times, and the coronavirus has meant that they have no security at all to potentially return to work after the worst has passed. There are also an estimated 3.3. million people who work off the books in Italy and many are suffering from food insecurity. In the South there have been mass robberies of supermarkets and where the mafia, in an attempt to extend their influence, has apparently been buying food for poor families and providing loans to small businesses (Tondo, 2020).
There are also other factors which show that the coronavirus has had a particularly hard impact on Italy. First, Italy’s population is fairly old, with a median age of 47.3 years in 2019 (for comparison, America’s median age this year was 38.2 years). This has made the severity of the pandemic in terms of death rate and hospital much worse than in some countries with younger populations. Another issue is that Italy’s economy is highly reliant on tourism, which accounted for 13.3% of GDP in 2019 and expected to grow over the next ten years. With a worldwide halt of travel, tourism may not come back soon, even if other industries worldwide show signs of recovery. With already poor economic growth and high government debt, Italy will face a tough road ahead as it tries to recapture some of the growth it enjoyed during the industrializing economic boom in the years after World War II.
Sources
Goodman, Peter. “A New Hurt in Italy From the Corona Virus: Banking Crisis.” New York Times, 18 Mar 2020, https://www.nytimes.com/2020/03/17/business/italy-banks-coronavirus.html.
NPR. “Ciao, Italia: Why Italy's Youth are Leaving in Droves.” NPR, 18 Feb 2020, https://www.npr.org/sections/money/2020/02/18/807025154/ciao-italia-why-italys-youth-are-leaving-in-droves.
Tondo, Lorenzo. “This article is more than 6 months old Mafia distributes food to Italy's struggling residents.” The Guardian, 10 April 2020, https://www.theguardian.com/world/2020/apr/10/mafia-distributes-food-to-italys-struggling-residents.
Trading Economics. “Italy GDP Annual Growth Rate.” Trading Economics, January 2020, https://tradingeconomics.com/italy/gdp-growth-annual.