Bankitalia: "The recovery of GDP in V is no longer real"

• The go-ahead from the government to the Def, the report on the budget variance also passes
• Def, towards deficit at 10.4% and debt / GDP at 155%

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"I fear that the exit from the crisis" with a "V-recovery" (with a strong recovery after the collapse on the same pre-crisis levels) "is not even in the Def profile or in our scenarios". This was stated by the Head of the Economics and Statistics Department of the Bank of Italy Eugenio Gaiotti in a hearing at the Def. "In no scenario does the level of GDP return to previous levels, we are already in the phase of thinking of a trend if not in L (flat recovery ed), perhaps in U".

Estimated -6% revenue 2020, worst drop in 50 years
"According to the estimates of the Def trend picture, in the current year compared to 2019 the overall revenue would drop by almost 6 percent: such a decrease would be unprecedented at least in the last 50 years, "says the Bank of Italy, according to which" in 2021 only a part of the loss of revenue would be recovered. In fact, excluding the revenues deriving from the activation of the safeguard clauses on indirect taxes, the forecasts of the trend framework of the DEF would indicate total revenue in 2021 of about 4 percent higher than in 2020 ".

Coherent Def estimates, but forecast difficulties
"The macro economic prospects presented in the Def are consistent with the" crisis "picture for the Coronavirus emergency with a strong contraction in GDP, industrial activity, but" in this phase all the forecasts of the Def and ours are above all scenario analysis "says Gaiotti again. "The range of assessments made by observers in the current circumstances is exceptionally wide," he stresses, pointing out the uncertainties about the duration of the pandemic.

The timing of recovery will depend primarily on the evolution of the contagion, but an essential role will have the effectiveness of the support policies
"The uncertainty about the duration of the epidemic makes it extremely difficult to quantify its economic consequences - notes the institute central - but all scenarios indicate very strong repercussions, which will extend beyond the short term; this uncertainty can weigh heavily on investment and consumption. Recovery times will depend primarily on the evolution of the infection, but an essential role will have the effectiveness of support policies. "

Therefore, for the Bank of Italy "in addressing the emergency and its economic and financial implications, the Government's action presented in the DEF moves along widely shared priorities, including at international level: guaranteeing the resources necessary for containment interventions the epidemic and the response of the health system, supporting incomes and families, putting businesses in a position to overcome difficulties ".

State action to relaunch even after the crisis
"The measures adopted so far appear appropriate in the scale and design of the phase of the epidemic in which they were launched: they are helping to counteract the repercussions on families and avoid a liquidity crisis in the companies that would have had very serious consequences "adds the Head of the Economics and Statistics Department of the Bank of Italy, according to which" after the emergency, public action will also be necessary to ensure the revival of the economy.

A period of non-restrictive policies
is needed "The assessment expressed in the DEF, according to which the economy will need an adequate period of support and revitalization, during which restrictive fiscal policies would be counterproductive" is acceptable "says Gaiotti. "At the same time, as the document underlines, the development of a long-term strategy on which the reduction of the ratio between public debt and GDP also depends must not be neglected", he notes.

Estimated public accounts dependent on GDP recovery
"Each assessment of the trend in public finances is highly dependent on the evolution of the economy. About half of the increase in the weight of debt in the current year is due to the mechanical effect given by the fall in the produced in the denominator; its decrease expected for 2021 depends on the intensity of the expected recovery of the activity "says Gaiotti. "The relationship between debt and GDP, already very high before the pandemic, will increase following the contraction of the product, the use of automatic stabilizers and the necessary discretionary measures adopted to deal with the consequences of the crisis".

If return to growth, debt reduction possible
For Bankitalia "the point is to restart growth", "if we can return to a normal situation we will be able, with an appropriate primary balances policy, to return to the path of debt reduction" . To those who ask him about the risks of the increase, Gaiotti explains that "there are global monetary conditions because the costs of financing will remain low".

Saving on BTP? He must want to do it
"It is an element of strength and comfort that the Italian savings are sufficient to support the needs of the Treasury" to refinance the debt, because "in principle there is" but "of course there is a need who wants to do it not only for performance but for trust "concludes Gaiotti, responding to those who ask him about the various projects to channel, through tax relief or other more binding measures. However, Gaiotti did not want to "go into the merits of the proposals" received from bankers and politicians.