Italy: From one constraint to another

After being th e first country in Europe to face the pandemic COVID-19, the Italian economy has been hit particularly hard. This crisis has again highlighted the country’s structural idiosyncrasies, some of which have proven to be a cause of weakness in the current health context: the large contribution of tourism and services involving close social interaction to value added; persistently low productivity gains and underinvestment; lack of fiscal leeway due to the initial high level of public debt and historically low growth. In this context, the authorities’ response has been constrained, though the announcement of a European recovery plan (of which Italy is one of the main beneficiaries) and the ECB’s ultra-accommodating monetary policy are factors lending resilience to its public finances. The g rowth that will ultimately be recorded in 2020 will obviously be highly negative, but a strong rebound is expected in 2021, provided that yet another wave in infections will not force the government to shut down entire economic sectors again.