Outbreak in Lombardy: is the corona virus plunging Italy into recession?

Milan is proud of its status as Italy’s economic and fashion metropolis. But the crisis surrounding the outbreak of the corona virus in the Lombardy region not only slows the city down, it could also infect the country’s entire economy.

And that hasn’t been going well for years anyway. In the last quarter of 2019, gross domestic product fell by 0.3 percent – the largest decrease compared to the previous quarter in almost seven years.

“We are not doing very well anyway, and we are now seriously risking a recession,” said economist Andrea Giuricin from Bicocca University in Milan. The authorities are taking drastic measures to prevent the virus from spreading. Several municipalities in the province of Lodi, around 60 kilometers from Milan, were isolated.

Milan with its approximately 1.3 million inhabitants is also paralyzed. “The city that never stands still stands now,” said economics professor Francesco Daveri from Bocconi University. Many stores have closed, many companies have ordered their employees to work at home. Schools and universities are closed, football games have been canceled.

Deutsche Post DHL suspended the delivery of parcels in the regions most affected. The service provider transports parcels to and from customers in Italy as in many other countries. Companies like Lidl canceled business trips to and from Italy. Deutsche Bank also advises against traveling to the affected areas.

The German Chamber of Commerce and Industry had already expressed concern on Tuesday. “The rapid spread of the virus, particularly in the north, strikes the economic center of Italy and is currently causing additional uncertainty in the German export industry,” said DIHK chief of foreign trade Volker Treier. Germany’s trade with Lombardy is almost as large as that with Japan.

Draconian arrangements are also currently in effect in the Veneto region around Venice, which like Lombardy is considered the country’s economic engine. Together, the two regions make up a third of the country’s economic power. If you stand still, it has an effect on the whole country.

“The economic impact could be huge,” Prime Minister Giuseppe Conte admitted. However, it was too early to make concrete estimates of the extent.

The measures taken by the authorities could prevent serious consequences, but they could also increase the short-term damage to the economy, said analyst Jack Allen-Reynolds from Capital Economics. The authorities reacted with all their might, “and this reaction has more economic effects than the disease itself.”

It is already foreseeable that tourism will suffer badly. Many people shy away from booking a trip to Italy. Hoteliers complain about losses. Several countries warn of trips to Italy. Some airlines have already cut connections to Milan. The luxury and entertainment industries also suffer. Cinemas and theaters are closed. Fashion companies like Gucci, Prada and Versace were already worried about solvent customers from China before the outbreak in Italy.

Unlike in China, there have been no large-scale plant closings so far. The demand for goods that are not immediately necessary could collapse. “If you want to buy a nice new sweater or a dress or a new car, you may not necessarily do it now,” said economics professor Daveri.

But there should not only be disadvantages. «It is not true that everyone loses in a crisis. There are winners and losers, »he said. For example, sales in supermarkets have risen extremely – while sales in bars and restaurants have decreased. “People spend less on eating out, but more on cooking at home.” The government is now working to make it easier for companies and households affected: for example, deferred deadlines for tax payments or mortgages.

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