The Covid-19 Crisis. Impacts And Risks For The Italian Financial System In A Comparative Perspective

Abstract

La versione italiana di questo documento è disponibile al seguente link: https://ssrn.com/abstract=3663335The present Report analyses the economic impact of the Covid-19 pandemic as of the first semester of 2020 both in the domestic and in the international framework. Some analysis are updated to September and October 2020. The pandemic is a shock exogenous to the economic and the financial system, that symmetrically hit the supply and the demand side. It has also spread asynchronously over the globe, thus contributing to the persistence of its economic consequences. Many uncertainties about its severity and length make it difficult to forecast the development of the crisis, although it is clear that financial markets and the bank sector may become an amplifier of the shock and that pre-existent vulnerabilities as well as policy measures will be key to defeat the crisis. At the upsurge of the Covid-19 disease, Italy was already experiencing a weak economic growth; Italian non-financial, listed firms were showing a profitability growth lower than their European peers; domestic stock market has never recovered the levels achieved before the 2008 global financial crisis. At the same time, public deficit was under control as well as the conditions prevailing on sovereign debt markets; Italian banks were more resilient than they were in the past; households remained characterised by low debt levels and a high ratio of financial wealth to disposable income.The lockdown introduced in Italy last March as a containment measure of the pandemic has severely affected both the supply side and the demand side of the economy. Similar, although lower, effects were recorded in the major Eurozone countries. During the first term of 2020, both domestic and foreign financial markets experienced heightened turmoil and recorded severe losses only partially recovered in the following months thanks to the unprecedented policy measures adopted in the euro area and at the domestic level. Overall, the pandemic poses many downside risks to economic recovery, also because of the escalation of new Covid-19 cases across countries. The crisis also delivers some important lessons. First, policy makers need timely forecast of macroeconomic and financial risks, which only innovative analysis based on real-time and high frequency data may grant. Second, international cooperation is key, given the global dimension of the crisis and the looming risks driven by increasing geopolitical tensions and by a no-deal Brexit. Third, the pandemic is accelerating digitalisation of financial services and sustainable and responsible investments, that might require an update in the regulatory agenda.The Covid-19 crisis is deeply changing and will probably keep changing the economic and social framework. Both financial markets regulators and supervisors, as well as policy makers in general, need to develop tools and skills allowing a timely action whereas required by rapidly evolving conditions. The data driven approach already prompted by the 2008 global financial crisis need to be strengthened further, also through the application of investigation methods based on data science and data analytics.