Italy’s Economic Pain Shows Burden of National Coronavirus Lockdowns
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Italy’s month-old lockdown is slowing the coronavirus, but its economy is gasping for breath. Manufacturers in March had their worst month since records began, and are warning the government that they could lose customers to German and other foreign competitors unless factories reopen soon. Restaurants that have survived world wars are in danger of never opening again. Agriculture needs to find at least 200,000 seasonal workers, who normally come from abroad, before fruit and vegetables start rotting in the fields.
Italy is making progress in controlling its coronavirus outbreak. The number of people in intensive care has declined in recent days, after peaking late last week. Daily deaths are trending down. But there is still a long way to go in suppressing new infections. As a result, it isn’t clear when the government will pull back on measures that have curtailed social interaction. Italy’s lockdown is among the toughest in Western countries.
Plywood producer Brivio, based in a town southwest of Milan, has been caught up in the forced closure of those companies that aren’t considered essential. Production, 90% of which is exported and the bulk going to Germany, halted on March 25.
“It was right to close everything for a while because health comes first, but if we don’t open soon we risk losing clients because our competitors in other countries are still working,” says Attilio Brivio, the third generation of his family to run the company. “If factory production doesn’t start up next week, there are a lot of companies that will go under.”
Employers’ association Confindustria says Italy’s economy will shrink around 6% this year, provided the worst phase of the coronavirus outbreak has abated by May. The forecast assumes the economy can partially bounce back later this year from a deep contraction in the second quarter.
Italy’s government is considering a gradual plan to reopen the economy from mid-April onwards. After Easter, a limited number of industrial sectors could be allowed to resume production, depending on how the fight against the virus is going. But unwinding the lockdown could take several weeks. Service sectors such as restaurants and bars could face a long wait until they can reopen. Continuing hygiene and social-distancing rules are likely to affect all workplaces until there is an effective vaccine or treatment against the virus.
Italy faces a particularly grave economic risk from the lockdown because of the prevalence of small and midsize businesses, many of which are family-owned and have limited financial flexibility. In Italy, 95% of companies have fewer than 10 employees. The economy still hasn’t fully recovered from the aftermath of the financial crisis. In recent years, the profitability of Italian businesses that survived the crisis has improved, but it is still 20% lower on average than in 2007, according to rating agency Cerved.
To soften the blow from the lockdown, Italy’s government on Monday offered a €750 billion ($810.2 billion) program of guarantees for bank loans and liquidity that will be available to businesses.
In March, the government launched a €25 billion emergency fiscal package, with measures ranging from vouchers to pay for babysitters to subsidies of €600 for people currently without an income. More than 3 million people have applied for that subsidy so far. The government has also introduced a moratorium on some mortgages and other loan repayments for families and businesses, and is distributing emergency funds across the country, including food vouchers for families in need.
Companies say the immediate financial help is vital for surviving the shutdown of production and commercial activity, but they say what they really need is to get back to work.
“If you are closed for three weeks you can keep your clients, because they know these are exceptional times. But much longer than that and they will look elsewhere,” said Massimo Carboniero, whose company makes machinery for the automotive industry and other sectors. “There should have been a decision across Europe to stop production for a certain period. It’s not fair for us to be closed while others are working”.
Most factories in Germany, Italy’s main competitor for export markets in many industrial sectors such as machine tools, are still operating.
Italy’s bars and restaurants were the first businesses to shut down a month ago, and will likely be the last to reopen. But many owners worry that if the restrictions continue for too long, they may not be able to reopen at all.
One of Naples’s oldest pizzerias, Gorizia 1916, survived two world wars and a cholera outbreak. Owner Salvatore Grasso is now wondering whether it can survive the coronavirus pandemic. He has enough cash to cover costs for three months at most. After that, the future is uncertain, particularly since demand is expected to be low even after the lockdown has been lifted.
“Never before have we been shut this long,” says Mr. Grasso, whose grandfather kept the pizzeria open even when the port city was being pounded by air strikes during World War II.
Mr. Grasso has no revenue coming in, but he still has running costs, including the €11,000 monthly rent. The government is helping by allowing Mr. Grasso to deduct about half of the rent from his tax bill, and it is subsidizing the salaries of his 15 furloughed employees for the next two months.
The same dynamic is playing out across the country. Every month of closure costs the bars-and- restaurants sector €8.3 billion in missed revenues, according to estimates by the trade association FIPE.
Even businesses that weren’t forced to shut down are suffering. Among them are wine producers, who before the lockdown used to sell around half of their production to bars and restaurants. People are drinking less at home than they would if they went out, and they are less willing to splurge on expensive bottles. As the virus sweeps the world, wine exports to all regions are down. “There are no precedents for this, even if you go way back in time,” says Ottavio Cagiano, who heads Italy’s association of wine producers, Federvini.
So many wine bottles are going unsold that some winemakers are considering using the alcohol to produce hand sanitizer instead. Some producers of liqueurs, such as Campari and Ramazzotti, already are.
Italian agriculture is also facing a shortage of seasonal workers, most of whom normally come from eastern Europe. More than 200,000 are needed this year, according to agricultural industry association Coldiretti. Strawberries, asparagus and radicchio are due to be harvested now and risk rotting in the fields. The grape harvest starts in August but nobody knows whether the seasonal workforce will be willing, or able, to come back by the summer.
