Italy: Coronavirus implications not to cause funding problems – Danske Bank

Italy has found itself at the epicentre of a crisis, battling with the most severe coronavirus outbreak globally after China. Italy’s coronavirus crisis is rapidly turning from a humanitarian one to an economic one as well. Economists at Danske Bank analyze the possible consequences.

Key quotes

“Widespread production closures will still take their toll on industry output and we would not be surprised to see a quarterly growth contraction of -0.75 to -1.0% q/q in Q1  We see a risk that the repercussions of the lockdown will be headwinds for the economy that extend into Q2 or even Q3.”

“With a relatively ‘mild’ recession of -1.0% in 2020 and no increase in borrowing costs, the debt ratio will likely overshoot the 140% threshold by the end of the year.”

“Italian banks to struggle with loan loss provisioning and lower profitability, while sovereign-bank linkages remain significant.”

“As long as Italy can avoid significant rating downgrades, we do not expect Italy to run into major funding problems.”