2020 nightmare, but a record rebound will follow
For Italy this would be the worst drop in GDP in the last 60 years, but it will be partially consoled in 2021 with a recovery of + 9% according to Unicredit experts. The recovery could already begin in the second half of the year after a first quarter which could mark -5% on a quarterly basis and a second quarter of -22% on a quarterly basis, as the intensification of the supply shock adds to the demand shock that mainly affected the service sectors (e.g. trade, transport and tourism). “We expect a rebound in the second half of the year as companies rebuild inventories and confidence gradually recovers, supporting the pent-up demand from the private sector. Yet the strength of this recovery is one of the main ones uncertainties about the outlook“, He argues Loredana Maria Federico, Chief Italian Economist of Unicredit.
As a result, public accounts with deficits of 12.2% at the end of the year from 1.9% at the end of 2019 will go under stress. Public debt is seen to jump from 134.8% to 167% of GDP.
Towards the spring ratings of the rating agencies
Italy in this very difficult scenario will have to beware of the ratings of rating agencies. Already in the second quarter they will speak on Italy S&P on April 24 (BBB, with negative outlook)instead, May 8th will be the turn of Moody’s (Baa3, stable outlook) and DBRS (BBB [high], stable outlook). “While we do not expect a change of assessment in the midst of the crisis – asserts Loredana Maria Federico – Agencies are likely to carefully examine Italy’s ability to recover from the crisis and thus to manage an even higher public debt / GDP ratio. Results achieved before the current crisis regarding imbalances in the private, external and banking sectors helps to mitigate the rating concerns of agencies.
Fitch, which in turn has a negative outlook on Italy (BBB rating), will speak on July 10th.
The rating agencies also focus on rating agencies Bank of America which, in the future, are likely to be downgraded by Fitch and S&P as the outlook indicated by them is already negative and the outlook for a sharp deterioration in public finances and growth. However, the US investment bank does not foresee a further downgrade below the investment grade level considering the financial and political repercussions of such a move.
There are those who can do worse than Italy
In the report entitled “The mother of all recessions has arrived”, Unicredit Research indicates a collapse of 6% of world GDP and a recovery in 2021 of + 8.6%. Double-digit drops are expected for the US economy (-10.8%) and that of the Euro area (-13%) which should show substantial rebounds of + 11.8% and + 10% respectively next year.
They could be worse than Italy Greece (-18.6%) is Spain (-15.5%).
