(Bloomberg) – “The situation is not sustainable,” complained Giovanni Savorani, who runs the ceramics company Gigacer SpA in the Emilia Romagna region affected by the northern Italian virus.
Savorani, chairman of the Confindustria Ceramica industry association, is just one of the voices that pressured Prime Minister Giuseppe Conte to find a way out of the economic deadlock created by lockdowns. Millions of companies, and their employees, have been affected, and many businesses fear bankruptcy.
The first major European country to be hit by a coronavirus epidemic, Italy now finds itself at the forefront of how to design exit strategies for large economies from deep freezing in activity. The balanced experiment pits the threat of deepening the financial damage to the danger of bringing a second wave of viruses, with fatalities to be caused.
A decision by the Conte government is imminent, because now the virus case curve is only beginning to subside, after more than four weeks stopping almost all business activities and more than 16,000 lives lost. The economic collapse is clearly seen in a country whose finances are filled with high debt and low growth even before this crisis.
“Italy’s real problem is that it is already in a weak position because of its high public debt,” said Nicola Nobile, an economist at Oxford Economics. “Countries with structural problems in Italy cannot afford to delay any longer.”
Bloomberg Economics expects a contraction of more than 6% in the first quarter, and Unicredit sees GDP down 15% this year.
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While medical experts insist it is still too early to say when restrictions can be lifted, the company is eyeing the second half of April, the current horizon for locking action. Carmaker Fiat Chrysler is one of the major companies in the country that will write on April 14 to start production again.
But only certain areas such as agriculture and the health sector may be opened on that date, according to an official familiar with the discussion. The so-called “phase 2”, with companies and businesses gradually resuming their activities, can start on May 4, said a government source.
Savorani, whose association includes 170 members and as many as 40,000 employees, said that such a schedule was not good enough. The risk of the industry will lose permanent market share to foreign competitors whose production is ready to operate, he said.
More than half of the 4.3 million businesses in Italy have been closed, according to the Confindustria employer association, estimating that nearly 9 million workers are affected.
Retail fuel sales fell 85%, according to the gas station union, while tourism has stopped completely, with almost all hotels closed, according to the association of hotel owners Federalberghi.
“Some companies may never reopen,” Licia Mattioli, vice-president of Confindustria, said in an interview. “We can’t wait any longer.”
Mattioli, who heads the family-owned jewelry company of the same name in Turin, observes that Italy’s productive capacity is 50%, while other countries are far above that.
“After you lose clients because they supply themselves elsewhere, it is difficult to return to the value chain,” he said. “In other areas like fashion, where you produce for sale at the end of the season, you have shoes, bags, clothes that are out of date like mozzarellas.”
Smaller European countries such as Denmark and Austria have announced plans to return to normalcy in the coming months, encouraging Italian businesses to push harder for a gradual reopening.
Conte has complicated calculations to make. The authorities fear that early relaxation could trigger another wave of transmission. Italy has been flooded with decisions that prioritize business before health in the early days of the crisis, when production was allowed to continue until death rates surged out of control.
Then when output starts anew, there is a problem rearranging distribution and supply chains to comply with new rules that are introduced to ensure security. This includes providing protective equipment and ensuring social distance during all phases of the workday, including in the canteen and changing rooms.
Such requirements may be difficult for many small companies to apply. Meanwhile, unions have threatened strikes if the economy restarts too quickly, while employers also risk expensive lawsuits if staff fall ill at work.
Even when all obstacles are removed, and assuming there is no return in the plague, Italy will then face a great struggle to improve its economy.
“The real problem is recovery,” said Gianluigi Torzi, chairman of the asset management company JCI Capital. “We will not see this type of postwar recovery when all this is over. A happy, productive post-war recovery. This recovery will be sad. “
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