Press Release

DBRS Morningstar Releases a Press Release titled “COVID-19 Tests Italian Resilience”

March 12, 2020

DBRS Morningstar released a press release titled COVID-19 Tests Italian Resilience

Italy’s resilience is being tested as recorded coronavirus disease (COVID-19) cases and deaths rise sharply and the Italian authorities have implemented several restrictive measures placing the entire country in lockdown for two weeks. Although these measures might become even more restrictive, those in place are not as severe as those imposed in China, but if respected should help limit coronavirus contagion. Preliminary evidence has shown some positive signs from areas where the lockdown measures have been harsher. This may subsequently help limit otherwise sizeable economic and fiscal costs. Main measures so far include closures of schools, museums, universities, sport centers, bars, restaurants, and all commercial activities except food stores, pharmacies and financial and insurance services outlets. Public transportation remains active, although subject to potential restrictions, but citizens are invited to stay at home. They can move around by signing a self-declaration of work- or healthcare-related need.

DBRS Morningstar views Italy, rated BBB (high), Stable Trend, as having a degree of resilience to short term economic shocks. The Italian government’s crisis response measures to support the economy include a fiscal package of up to EUR 25 billion, representing 1.4% of GDP. “The potential positive carry-over effect of a deficit of 1.6% of GDP in 2019, the lowest since 2007, is a fortunate starting point, even if the expected recession, higher fiscal spending and the deactivation of the VAT safeguard clauses might push the total fiscal deficit above 3.0% of GDP”, said Carlo Capuano, DBRS Morningstar Lead Analyst on Italy.

In coming weeks and months, DBRS Morningstar will evaluate the likely depth of the recession and also whether or not it will extend beyond the second quarter, challenging the current consensus view. For some time, DBRS Morningstar has viewed weak GDP growth as Italy’s Achilles’ heel, and a key constraint on lowering the very high public debt burden that limits its flexibility in times of crisis. A short term shock of moderate depth most likely will be manageable and should be followed by an economic rebound and a re-stated commitment to fiscal consolidation. However, the emergence of signals that suggest a deeper and more prolonged slump could have negative rating implications. Pivotal in the assessment will be (i) the success of disease containment and the speed at which economic activity recovers (ii) the fiscal costs of supporting the economy (iii) the impact of crisis mitigation measures on Italian banks (iv) further announcements and the effectiveness of European institutions’ crisis measures.

Italy’s tourism and transport sectors are under severe strain with very high cancellation rates throughout the country. The tourism sector directly accounts for around five percent of Italian GDP and indirectly a lot more, and its negative contribution to economic growth will likely extend for a prolonged period of time. However, DBRS Morningstar views risks to the economic outlook also coming from the manufacturing sector, if production is severely affected by domestic measures. Indirectly, lower foreign demand also poses risks to manufacturing output as the virus spreads sharply in other trading partners such as Germany. Manufacturing accounts for around 17% of gross value added (GVA) and it makes a sizeable contribution to Italy’s export capacity. Last year, Italy’s total export of goods was about EUR 460 billion representing 26% of GDP. “Although the domestic situation will likely test the resilience of Italian firms, the country is the second manufacturing economy in Europe and it is highly integrated in European value chains. The speed of Italy’s recovery will depend also on the effectiveness of the EU and global response,” said Carlo Capuano.

The press release titled COVID-19 Tests Italian Resilience is available at

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