The second wave of Covid can cost more than 3 points of GDP and the recovery is postponed until 2022

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GDP and the pandemic walk together and thus a second wave of Covid with a boom in infections and hospitals under pressure in the coming months could cost more than 3 points of GDP in 2021 and 1.5 in this year, with the recovery that at this point we will really see it only in 2022. This possible scenario is designed by the Government in the Nadef (the Update Note to the Def) which is expected on Monday night in the council of ministers. In the draft, the Executive publishes its updated forecasts that, as anticipated by the Minister of Economy Robero Gualtieri, foresee a programmatic GDP growth of 6% in 2021, 3.8% in 2022 and 2.5% in 2023., these, however, that could be questioned by a possible resurgence of Covid

The risk of Covid on economic recovery

It is the draft of the Nadef that reaches the table of the council of ministers to dedicate a paragraph to this possible “adverse scenario of the resurgence of the epidemic.” A scenario according to which “the resumption of infections observed from August would worsen significantly in the last months of 2020, also leading to the achievement of guard levels in terms of hospital admissions”. A situation that would induce the government to “reintroduce selective closures of certain sectors and social distancing measures.” Decisions that would also affect GDP, which at this point “would suffer a further fall in the fourth quarter.” A trail of mini-closures and company closures that could see a “strengthening” even “in the first months of next year” and therefore GDP “would continue to fall, although – warns Nadef – to a much lesser extent than in the first 2020 semester (thanks to the knowledge and protection tools acquired in the meantime) “. Finally, according to the Government, “the trend of the epidemic would improve in the spring months, but the mass distribution of vaccines would only begin in the second half of 2021.” For this reason, even if economic activity could recover already in the second quarter of 2021, the return to the “situation before the crisis would be slower”. Also because the worsening could affect not only Italy, but also other countries and, therefore, our economy would be “also affected by the reduction in exports of goods and services.” Therefore, a real recovery could only be seen in 2022.

The effect on the numbers

First, Nadef lowers the real GDP variation for 2020 to -9.0% (-9.1 percent on the average of the quarterly data), from -8% of the Def forecast. And if the new trend forecast GDP growth rates are 5.1% growth for 2021, 3% for 2022, and 1.8% in 2023, Nadef builds its programmatic scenario on GDP “in light of important innovation constituted by the European Recovery Plan “. A plan that includes a package of grants and loans that the government will use in its entirety to finance the projects it is working on in recent weeks: in particular, the part of the European grants will be used in full to finance new investment projects, while the loans will be used in part also to finance trend spending. Thanks to this plan, “the trajectory of real GDP consistent with these estimates predicts a growth of 6.0% in 2021, 3.8% in 2022 and 2.5% in 2023.” All this, however, net of a possible “resurgence of Covid-19 infections in Italy, which would affect the months of October, November and December of the current year and the month of January 2021”. And that would have an impact between the direct effect on the Italian economy and the repercussions on world trade of 1.5 points of GDP in 2020 and 3.3 points in 2021. So much so that even “the annual forecast of GDP decline for 2020 it would go from -9% of the trend scenario to -10.5% “and that of 2021 (always trend)” would stop at 1.8%, compared to 5.1% “.

The other numbers and the maneuver

With the update of the macroeconomic variables in the Nadef, the framework within which the next budget maneuver will be finalized is also defined. A maneuver in which “- the Note reads – significant resources are foreseen to support employment and workers’ incomes, especially in the sectors most affected by the emergency.” The objective is then to complete “the financing of the cut of the tax wedge on dependent work” and “the cut of contributions in the South already introduced by the decree-law of August limited to the second half of 2020 is financed”. Also advertised
“A broad tax reform, which the Government intends to implement on the basis of a delegated law” and which must be linked “to the introduction of the universal allowance for children.” Regarding the deficit / GDP ratio estimated at 10.8% in 2020, Nadef sets the debt targets “at 7% in 2021, 4.7% in 2022 and 3% in 2023.” Finally, a “significant drop” in debt is expected from the 158% estimated for this year, in fact it would drop to 151.5% in 2023, a reduction of 2.6 percentage points higher than that of the trend scenario ”. “The longer-term goal – Nadef concludes – is to bring public debt back below the pre-Covid19 level by the end of the decade.”