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March 30, 2021 "The expenditures needed to address the pandemic shock and ensure recovery should be accompanied by a credible plan to anchor significant, albeit gradual, debt relief once the recovery itself is consolidated."

The opinion is contained in the note released by the staff of the International Monetary Fund at the end of the annual mission to Italy.



"The public sector," notes the Fund, "has appropriately absorbed much of the income losses caused by the pandemic, but policies will need to be refined as the recovery progresses."

According to the technicians of the Washington institute, "the exit from the support measures should proceed in tandem with the recovery, but aid must remain available until the recovery itself is fully established".



In any case, the document warns, "fiscal space must be used with caution. Ensuring that the health system and vaccination program are adequately funded is the top priority."



According to the IMF, "if demand in the sectors most affected by the pandemic remains weak even after the health crisis is over, a targeted but temporary stimulus to demand could help restart activity by unlocking accumulated savings and encouraging business. to reopen, bringing employees back to work, generating additional tax revenues and, ultimately, reducing future scars ".



For the technicians of the Washington institute, "a credible strategy to reduce the ratio of public debt to GDP requires well-identified reforms to accelerate growth and increase the efficiency and fairness of public spending and the tax system".



Hard blow, but Italy's response is effective

The coronavirus pandemic "has dealt a severe blow to the Italians and their economy", but "the prompt and decisive response of the authorities has helped to act as a shield".

The opinion is contained in the final note released by the staff of the International Monetary Fund at the end of the annual mission to our country.



Thanks to the measures put in place by the government and the European authorities, observes the Fund, "the aggregate disposable income of citizens has decreased only modestly and many companies have retained adequate liquidity. Not least uncertainty and unprecedented concerns about the future proven by citizens and businesses are clearly reflected in the high savings rate and low investments ".



Future

The stimuli put in place to tackle the pandemic "will be needed even after the health crisis has passed to limit the scars of the labor market and in the accumulation of capital and build a greener, more digital and fairer future".



Italian GDP + 4.25% in 2021

Italian GDP could grow "by about 4.25%" in 2021, "with a weak start followed by an acceleration in the last part of the year".

The Fund notes that "the prospects for the Italian economy are linked to the trend of the pandemic and support policies" and remain "uncertain".

According to Washington technicians, "the growing number of licensed vaccines and the ongoing immunization program will provide a way out of the pandemic, although the mutations that are emerging could cause brakes."



The document stresses that "the return to pre-Covid conditions in most of the economy, reinforced by the substantial expenditures foreseen by the National Recovery and Resilience Plan, could accelerate economic activity well above the medium-term trend. However, ", warns the IMF," many companies may have to cope with excessive debt "and may be forced" to close, causing an increase in unemployment if relocations and the creation of new businesses are slow ".



For the Fund, however, "considerable uncertainty surrounds the baseline scenario".

In the short term, "a faster victory over Covid through an acceleration of vaccinations, both in Italy and internationally, would bring forward herd immunization and could support demand, with activity able to exceed its levels. pre-Covid already this year.



The broad US fiscal package is further upward support. The efficient use of Next generation EU resources accompanied by the successful implementation of structural reforms aimed at reviving growth could generate a broader and more persistent acceleration of activity in the medium term ".



On the other hand, warns the IMF, "a slower resolution of the pandemic emergency would delay recovery, increase corporate debt and worker layoffs and preserve high savings rates. If credit quality were to deteriorate markedly, the ability of banks to finance the recovery could be reduced ".



Furthermore, "a rise in US long-term interest rates could cause real interest rates to rise in Europe and Italy faster than would be warranted by underlying inflation and persistent overcapacity."



Ensuring Banks Maintain Credit Flow

"The quality of bank lending is bound to weaken as temporary aid measures expire, but maintaining a flow of credit to good looking companies is essential to sustain the recovery."

The technicians of the Washington institute also encourage the authorities "to act promptly to deal with each single bank in difficulty" and to evaluate "on a case-by-case basis" when "to allow the payment of dividends to avoid penalizing the most capitalized and most capable institutions. generate profits while preserving the capital of the weaker banks ".