Italy Slumps into Perma-Recession -- Economic Collapse in The Eurozone

Germany slumping into recession; The Brexit aftermath; And the Coronavirus in China; The effects of this are going to be felt very sharply in Italy in particular. Add to this, failing Banks; The Euro; A huge public debt; and an unstable political situation, and you have the recipe for a major financial crisis. Italy, the EU’s fourth-largest economy, was already in a technical recession since the second half of 2018 and has faced continued economic woes from weak productivity, high unemployment, huge debt, and political turmoil. The impact of the coronavirus risks are significantly negative on the global economy, but particularly for Italy. China is Italy’s third-largest supplier, and 3.5 million Chinese tourists visit Italy every year. The longer the Chinese economy remains crippled, the bigger the risk to Italy. The outbreak has come at a difficult time for Italy’s economy. Output unexpectedly shrank 0.3 percentage points in the final quarter of 2019, ramping up pressure on the fragile coalition government of Prime Minister Giuseppe Conte. Bank of Italy Governor warned of significant downside risks to the country’s outlook. In fact, the country could be heading for its fourth recession in a little more than a decade. Italy has been fighting a slow or no growth trap throughout this century. Italy has more than 20% of the probability of going bankrupt in the middle term. Until the structural reforms are not done, Italy will keep loosing industries, Know How , and talented and well-educated people, etc. In the short term, it doesn't matter which coalition will rule the country. At the moment, both the USA Federal Reserve and the European ECB are keeping flooding the markets with cash, so Italy will continue being able to sell its bonds with low interests, but in the future, we don't know. Growth has stalled, leaving the country’s economic output still 5 percent below its pre-crisis peak of 2008. At the same time, Italy's debt-to-GDP load has reached heights not seen since World War II. Italy's debt load is rising. It currently stands at about €2 trillion ($2.25 trillion). Debt to GDP has reached 130%, a level not seen since World War II. Italy has the EU's second-highest debt to GDP ratio. Rome currently spends 3.7% of its GDP on debt interest. The public debt ratio [to GDP] will probably continue rising and eventually prove unsustainable. And as if it was not enough. Now that Germany entered a recession. In fact, in January, industrial production in Germany collapsed. A heavy, unexpected drop of 3.5%.And When Things are going bad in Germany. They are going badly for Italy too. Germany is the first commercial partner for Italy. The value of the Italian exported goods to Germany, represents 12.5% ​​of the total of Italian exports, a quarter of what Italy exports to the whole EU. The Italian and German production systems are strongly integrated with each other in the global value chains since Italy is an important supplier of intermediate products and capital goods to German companies. The fall in German manufacturing production, therefore, slows down Italian exports. And by a lot. The Italian industrial production collapsed in December 2019. -2.7% on the month and -4.3% on the year, the worst drop in a year, and far below the expectations of economists. The crisis of the Italian industry weighs drastically on GDP and employment. In fact, due to a lack of job prospects, many educated young Italians, which have been hit hard by the economic crisis, feel they have no choice but to leave the country and try their luck elsewhere in Europe. Italy Is also Facing the Worst Demographic Crisis Since World War I. Italy has entered a "perma-recession," and there is no obvious way out. This could trigger a €2 trillion financial crisis that threatens the eurozone itself. At the same time, Italy's debt-to-GDP load has reached heights not seen since World War II. There is now a growing risk of a systemic financial crisis. The scale of such a collapse would be magnitudes greater than the Greek debt crisis of 2015, and thus harder to contain. The Italian economy is also burdened by a number of cultural and historical factors — like corruption and inflexible labor market rules, to name just two — that hold back its productivity growth. Welcome to The Atlantis Report. Italy isn’t just in an economic slump. Its population is also sagging, pushing the country into its biggest demographic crisis in more than a century. The number of people in the country fell for a fifth year in 2019, and deaths exceeded births by almost 212,000, the biggest gap since 1918. President Sergio Mattarella put the issue in stark terms, saying it concerns “the very existence of the country.” Italy won’t have enough young workers, and funding a rapidly aging population will strain an already stretched fiscal situation. Pension costs now amount to almost 17% off the economy. With an aging population and a consistent decrease of workers who pay taxes, the retirement system may go haywire. According to Istat, the decline in Italian industrial production in 2019 was 1.3% compared to 2018, the worst since 2014. Among structural problems, a critical international scenario, and the Coronavirus crisis, the prospects do not seem rosy at all. Bad news for the Italian economy. According to Istat data, the Italian industry in 2019 collapsed: -1.3% compared to the previous year. The country's GDP slows down and shows no signs of recovery. 2019 was a horrible year for the industry. What can be seen from the data, which vary from quarter to quarter, is that growth is around 0. There have been quarters with a marginal growth of 0.1%. For eight quarters, the Italian economy has essentially zero growth. Some industry data for January 2020 before the coronavirus outbreak signaled a return to business confidence for the start of the year. We will now see the effects of the virus on the economy. Less 1.3% for 2019 compared to 2018. This is the worst ISTAT figure since 2014 for the Italian industry. Obviously, it is a very negative figure. What do the Italians need to do to stop the collapse of their industry? As high part of this slowdown is imported from abroad. The Italian economy is very exposed to foreign trade. They have to export a lot. If Germany goes badly, they export less. In Europe, France and Spain are better than in Germany. If Germany were to get worse, however, it would slow down all of Europe and especially Italy. To relaunch the industry, the public investment must be restarted today at 2% of GDP (one of the lowest values ​​in Europe). They need to build bridges, make roads to the south, and complete the digitization of public administration and networks. Then to help workers and small businesses, they need to reduce the income tax on medium and low incomes. Gradually reduce deductions and deductions. Spain is growing, the data say. So how did they manage to achieve this? By making more deficits to save their banking system. Italy has tried to do its own thing, and this has implied raising taxes to make ends meet, while the Spaniards have managed to avoid it. The money that Spain spent in deficit has used them well enough to revive the banking system and revive the economy. They had a different strategy from the Italians during the euro crisis between 2011 and 2012. It must be said that the Spaniards started from a much lower level of public debt than Italy. In 2007, debt in Spain reached 36% of GDP, Italy already had 100% of GDP. The crisis added debt to both countries; however, in Spain, they managed to make much more debt. If the Italians had made expansive policies like the Spaniards, they would have gotten the default. What effects will Coronavirus have on the international economy and especially on the Italian economy. The bulk of the effects concern Chinese tourism. The Italians cancel the trips to China. The Chinese no longer make trips to Italy. It is one of the most relevant effects. If panic spread, there would be a much more serious recession than we have seen with the Sars virus. The Chinese government has moved late, but the other governments have activated themselves and are ready to intervene in support of their economies. The Coronavirus will definitely have a devastating effect on the Italian economy this year. This is the forecast contained in Nomura's report on the global impact of the virus. "Given the low growth rate from which Italy starts this year, - we read in the report - we expect the country to enter a recession in 2020, with a GDP decline of 0.1% in the year (much below 0.6% expected by the government) ". If from a basic scenario we pass to a negative one the drop is 0.2% while in the worst case it reaches -0.9%. The eurozone baseline scenario, the report explains, assumes that China's blockade measures will only last until the end of the month and that COVID-19 infections will be primarily confined to China. In this case, only a "modest" impact on the area's economy is expected, with Germany among the countries most affected in exports and in the supply chain. The drop in tourism spending should instead have a negative impact on growth especially in Italy, analysts of the Japanese group still write: "anecdotal evidence on Italy suggests that the country has already experienced thousands of cancellations in recent days. Reservations are falling in tourist destinations such as Tuscany and Venice, while Milan, according to the mayor, is losing 4 million euros per day in missed sales and canceled reservations ". Nomura then revised GDP downwards by 0.3% for the first quarter of Germany and France, 0.2% in Italy and 0.1% in Spain. The low growth rate of Italy, however, plays against statistics, causing the economy to slide into recession already in the less pessimistic scenario. In the negative one, where the Chinese quarantine measures continue until the end of April, the economy of the euro area will suffer from the more prolonged and more acute slowdown of the Chinese economy with a further weakening of trade and further interruptions of supply chains. "In this scenario, we see Germany and Italy as the most exposed countries, with France and Spain suffering the least." In the worst-case scenario, China's blockade measures continue for the entire half of 2020. If the infection were to become a pandemic, fear would probably increase dramatically in Europe, and activity in all sectors of economic life would be significantly affected. Both Germany and Italy would fall into a recession in 2020, and further easing of monetary policy, including lower interest rates and probably steps forward in the ECB's purchase program, cannot be ruled out. The Nomura report predicts Italy in recession in 2020, mostly due to the Coronavirus. Italy looks like it may become stuck in a state of perma-recession. This was The Atlantis Report. Please Like. Share. And Subscribe. Thank You.













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