• February 26, 2020
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Coronavirus in Italy: Fears of a Recession

Over the course of a few days, Italian authorities have identified more than 300 cases of Coronavirus (COVID-19) mainly in Northern Italy. This has led Italian authorities to implement extraordinary measures to limit the contagion and the economy now will likely face lower tourism and economic activity. If limited to a temporary demand shock in line with DBRS Morningstar’s baseline assumption of the virus having a modest 1-2 quarter impact, this is unlikely to have lasting implications for Italy’s economy or for its DBRS Morningstar credit rating (BBB (high), Stable trend).

Among the Northern regions of Italy, Lombardy and Veneto have registered the highest number of new cases. Given that they represent Italy’s engine of growth, an extension of restrictive measures might have a considerable adverse impact on the economy.

“Italian authorities’ attempt to strike a balance between restrictive measures to contain the spread of the virus and attempts to limit the negative impact on the economy will be challenging. A mismanagement of the situation might negatively affect government stability. Italy’s fiscal space is limited, but DBRS Morningstar expects some potential fiscal measures to sustain growth. These, however, might be less effective should the economic impact be more on the supply side rather than on the domestic demand side,” said Carlo Capuano.

Re-disseminated by The Asian Banker