Italy: Draghi government unveils fresh stimulus package, while hinting at more to come
March 28, 2021
On 19 March, the recently sworn-in governing coalition approved a EUR 32 billion support package aiming to revive the Italian economy from the blow dealt by the pandemic and associated restrictions, which led to a record contraction of 8.9% in 2020. The new measures—which had already been budgeted by the previous government and approved by Parliament earlier this year—largely focus on providing monetary compensations for the businesses hardest-hit by the pandemic and supporting labor market safety nets, while they will also boost funding for the country’s vaccination program. Due to the recent resurgence in Covid-19 cases and the reimposition of lockdown measures, however, more spending measures are likely to come soon.
The approved stimulus is based on three pillars and comes in line with the priorities set out by Prime Minister Draghi and his government: supporting businesses and labor, and fighting poverty. Around EUR 11 billion are set aside for businesses and self-employed workers who lost at least a third of their revenues in 2020 due to lockdown measures and temporary closures. Moreover, EUR 8.0 billion are earmarked for supporting households through labor market safety nets, mainly through extending the redundancy ban until the end of June for firms in the agricultural and industry sectors, and to the end of October for those in the services sector. Additionally, funding for the short-time work scheme will be prolonged to the end of the year. Lastly, the package allocates EUR 5.0 billion to the healthcare sector and the strengthening of the vaccination plan, with EUR 200 million directed towards vaccine production in Italy.
However, amid stubbornly high infection rates, continued delays and logistical hurdles in the vaccine rollout, and the recently reimposed lockdown measures—set to least until at least 6 April—the prime minister hinted that another support package, which has not yet been approved by Parliament, is likely to follow soon to keep the economy afloat.
Commenting on potential further spending and the outlook for the budget deficit, Paolo Pizzoli, senior economist at ING, reflected:
“With the possibility to obtain a public guarantee on new loans and debt moratoria due to expire at the end of June 2021, we cannot rule out that some action on the two issues could be part of the new package. It is obvious that, over 2021, the suspension of the Stability and Growth Pact will leave room for manoeuver to the Draghi government to spend more if need be. The scope of the extra bill will crucially depend on whether vaccinations will accelerate enough as to allow a gradual lifting of containment measures in time to allow the upcoming summer tourism season to start. We are currently penciling a decline in the Italian budget deficit/GDP ratio to 8.6% (from 9.5% in 2020) and an increase in the debt/GDP ratio to 158% (from 155.6%) at the end of 2021.”
Author: Hanna Andersson, Economist