No break for Italian economy
With more than 322 confirmed cases of Covid-19 at time of writing, Italy has become the third worst-hit country in the world, after China and South Korea.
Why Italy has been hit far harder than any other western country remains a mystery. The Italian government has taken dramatic steps to limit contagion, locking down the affected towns.
From a macro point of view, the fact that the virus has hurt Italy’s industrial heartland (Lombardy alone accounts for 22% of total Italian GDP) is of particular concern.
At this stage, it is clearly difficult to assess the macro impact of the virus. Italy’s manufacturing-sensitive economy was already highly exposed to the virus outbreak in China. Covid-19’s spread to northern Italy further increases the downside risk.
The outbreak comes also at a time when the Italian economy is in poor shape. After Q4 growth of -0.3%, the probability of a recession has sharply increased.