COVID, REOPENING AND RISK OF NEW LOCKDOWN: A “POLICY BRIEF” BY FACULTY MEMBERS OF SANT’ANNA, IUSS PAVIA, SCIENCES PO AND IRPET ON BEHALF OF THE ITALIAN MINISTRY OF INNOVATION EXPLORES THE IMPACT OF THE ECONOMIC CRISIS

A team of experts from  Sant’Anna School, the Scuola Superiore Universitaria IUSS - Pavia, the OFCE (economic observatory) of Sciences Po – Paris and the Tuscany Region Committee for Economic Planning IRPET, on current economic issues produced a new policy brief on behalf of the Italian Ministry for Innovation and Digital  Technology to discuss how and to what extent interconnected economies and the production specialization can reverse the downward trend and the economic impact of the Covid-19 crisis.

The lockdown in Italy during the Covid-19 has created a further decline in sales and revenues that the government announced our country officially fallen into a record recession. The decline of private sector demand has contributed to create conditions in which the “phase two” path to recovery remains uncertain as well as the risk of a new nationwide lockdown could lead to a deeper economic crisis. As longer lockdowns could have a severe impact on household income and health, researchers analyzed how domestic and regional measures can contain the effects of the pandemic in the second half of 2020.

To inform discussion on next economic policy and to assess the ability of our country to manage the reopening of travel, transportation, manufacturing, industry,  tourism and education sectors, the experts highlighted how the European economies are closely integrated in global value chains, and Italy is still affected by the typical economic dualism in which profit-making and loss-making enterprises coexist. Mauro Napoletano, a senior researcher at OFCE Sciences Po and a member of the Ministry task force explains that: “All sectors should maintain their production within the range of 60 – 90 percent of average quantity before the production shutdown. We must ensure production disruptions to be temporary or they could lead to a deeper economic shock and derail recovery.”

The policy brief studied the interaction of different systems in different regions with segmented labor markets. Fabio Vanni, a post-doctoral researcher at OFCE Sciences Po highlighted that “The largest contribution to revenues come from construction, wholesale and retail trade, transportation and storage. Tourism and restaurant industry accounts for  3%.  Geographically, we expect a meaningful recovery (50%) in the production across the Northern Italy regions Lombardia, Piemonte, Veneto and Emilia Romagna.”

“We can see that the economy moves towards lower economic growth, but we need a more balanced growth path within specific segments having a high cyclical demand exposure to the business cycle. We will need liquidity to keep employees on the payroll, a heavy dependence on external funding and extended support for health risk management.” said Andrea Roventini, professor of economics at Sant’Anna School.

Experts think the extent of the impact depends on market exposures and liquidity pressures together with the healthcare challenges. Focusing on the employment distribution across sectors, workers high on the proximity index are concentrated in the Lombardia area with 60,000 employees (some coming from other regions Tuscany and Marche) being forced to come back to work. In addition, to remain competitive and to preserve the capital markets in the handling of the health issue, companies will need to make investments also in their employees. 108,000 (0.4 percent of total employment) employees ‘can’ face health risks in their workplace for domestic market and for 140,000 employees (1% of total employment) the health impact could come for preserving the export market. 

“We have examined data from six corporations with over 4 million employees that account for 25% of net national product. Only 334,000 workers (1.3 % of total employment) facing higher exposure to Covid-19 are in the Italian regions more exposed to Covid infection - Lombardia, Veneto, Emilia-Romagna, Piemonte and Tuscany. Data show that a successful strategy for reopening businesses while minimizing health risks should be based on national circumstances and prioritization of production.” explained Leonardo Ghezzi, a researcher at the Tuscany Region Committee for Economic Planning IRPET.  

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