In its biannual Economic Outlook, the OECD has predicted that if a new wave of COVID-19 should hit in the fall, Italy’s Gross Domestic Product (GDP) could fall by as much as 14% in 2020, before rising by 5.3% in 2021. If there is no second wave, the GDP could fall by “only” 11.3% in 2020, and rise by 7.7% in 2021. In the first case, there would be a record increase in public debt to 169.9% of GDP; in the second case, this would climb to 134.8% of GDP.
These are worse scenarios than the ones projected by the Bank of Italy, which has estimated, in the best-case scenario, a drop of 9% in GDP, with a drop of 13% for the worst case. The GDPs of France (between -11.4% and -14.1%) and Spain (-11.1% and -14.4%) are also set to collapse, as will the global GDP, dropping by 6% in the best-case scenario.
With a second wave of infection in the fall, global GDP would drop by 7.6%. “We are in the midst of a combined global health, economic and social crisis that is the most severe that any of us have ever witnessed,” said Miguel Angel Gurria, Secretary General of the OECD. The GDP per capita in real terms will fall back to the level of almost 30 years ago. We will live in 2020 as we did in 1993.
The economic rebound foreseen by the OECD in 2021 should be seen as a partial balancing out of the loss incurred this year. Recovering the level of the 2019 economy, which was already stagnant, will require multi-year long-term growth that is difficult to predict. It should also be taken into account that Italy had not yet recovered from the financial crisis of twelve years ago.
In 2019, Italy’s real GDP per capita was at the level of the year 2000. The recovery, when it comes, will keep the clock twenty years behind what it would have been in the case of an unhindered capitalist accumulation.
Gurria also said that this was not the time to apply the rules on debt strictly and to the letter, emphasizing that it was not appropriate to focus on rules such as the EU’s 3% deficit rule. OECD chief economist Laurence Boone has called for a clear distinction between the level of debt measured according to the “national accounts” and the Maastricht definition, in order to avoid “confusion.”
According to Boone, the pandemic has affected countries in such a way that everyone will see a rise in the debt/GDP ratio on the order of 20 points, and Italy is no exception. He pointed out that the European recovery plan (the Recovery Fund) is designed to respond to the economic divergences caused by the pandemic, consists of grants and subsidies and doesn’t burden the national debt.
Following the lead of the European Commission, the OECD has also asked the Italian government to extend access to the so-called “citizenship income” in order to support demand and prevent an increase in precariousness, economic inactivity and unemployment. Usually, such requests end up always tied to an active work policy or to “obligations” to accept makeshift jobs set up to substitute labor shortages, like the “relaunch decree” did with agricultural work.
However, at the moment, the government has no intention to even give a fair hearing to the campaigns calling for the extension without constraints of the citizenship income and universal welfare reform, and it is ruling out the reform of this dangerous instrument of coercion that will force at least one million people to perform unpaid work (or for symbolic wages) for up to 16 hours per week, while being forced to move even all the way across the national territory.
The system of occasional bonuses for the self-employed with VAT numbers and semi-independent workers, as well as the emergency income lasting two months for the very poor, will both end by mid-summer. This will be a dramatic accelerating factor for the crisis. The blind faith in the “restart” of non-existent automatic market mechanisms has clouded the judgment of Italian politicians. Millions of people will pay the price.