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The effects of the Coronavirus on the tourism sector are having a very negative effect on the Italian economy. The paralysis of the sector, together with other factors, could lead to the next Italian economic recession.

The Italian economy, although it had just gone through a bad situation last year, is already showing new weaknesses that place it in the eye of the hurricane. The poor performance of the Italian economy during the last quarter of last year, coupled with not very encouraging projections, put the Italian economy in a rather complicated scenario. This scenario, if not reversed, could lead to further contractions in gross domestic product (GDP).

As I said, during the last quarter, while the European economies showed a certain robustness that was reflected at the end of the year in the growth finally recorded, Italy closed the quarter with a contraction in its gross domestic product of 0.3%. This contraction was due to the worse performance of the economy during the last quarter of the year, causing a worse result at the end of the year, as well as in the forecasts projected by the International Monetary Fund (IMF).

However, if we look at the situation the Italian economy is going through at the moment, the scenario is even more pessimistic. A few days ago we were talking about the harsh effects that the Coronavirus would have on the tourism sector. These effects, as we can see, are already beginning to occur in the various areas of the planet where the virus is threatening citizens. One of them is Italy, where the contagion is constantly increasing, while the number of dead continues to grow as the days go by.

The situation is quite complicated because, as I said, Italy has just been through a tough situation, registering a contraction in its GDP that has left it in check’. A situation that could be ended by the effects produced by the Coronavirus in sectors such as tourism, which is very important for the country. So important that even Giuseppe Conte himself has expressed his concern about the situation of the country, as well as the effects of the viral expansion that is frightening the planet as a whole.

With approximately 128 million tourists a year, Italy is a major tourist power. In 2018, tourists spent about 42 billion euros in the country, as already announced by the Bank of Italy. In view of the stagnation that the tourism sector is experiencing on the planet, these figures could be shaken during this year. The expansion of the virus and the fear of the citizens, as well as the governments, has caused a great decrease in the geographic mobilization for tourism.

At the same time, all over the world, countries such as Germany, Spain or Italy continue to cancel outstanding events that, in turn, represented a large influx of thousands of tourists to the place, to attend these events. We are talking about the fact that in Germany all the parties planned at the beginning of the year have already been cancelled; Spain, on the other hand, was forced to cancel another outstanding event such as the Mobile World Congress (MWC); while Italy, for its part, has been forced to suppress the famous Venice carnival. An event that if anything was characterized by the arrival of tourists and spending.

As we can see, the Coronavirus continues to severely damage the tourism sector. The great ignorance about the effects, as well as the work of the media in spreading the news is not only frightening people, but, as we can see, it is even causing the financial markets to be severely shaken by the great repercussion that the spread of the virus is having. A virus that has already reached Europe and is beginning to spread to all the member countries, even to North Africa.

The health epidemic that is shaking more and more countries is beginning to show these symptoms of contagion, also in the economy. These symptoms have led the Italian Government to take decisions such as releasing those territories in the country that are currently infected from their tax obligations. The economic activity in those infected territories is plummeting, since the measures to prevent contagion are generating hostages who, hidden in their homes, are fleeing from the possible contagion, which they fear so much.

In view of this, the forecasts for the quarter, given the situation, are not at all good. Moreover, coming from a quarter like the last one, with contractions in the gross domestic product, the situation is quite bad. We are talking, and we should not forget, about a technical recession, since we are chaining two consecutive quarters with contractions in the gross domestic product. A situation that worries the country and its leaders, whose hands are tied, given the inability to paralyse and alleviate the virus in its entirety.

The Coronavirus has already reached the economy. Although analysts have predicted a limited impact of this on the world economy, we cannot say the same for certain countries. Certain countries such as Italy, which, given the situation in which it finds itself, the Coronavirus has represented the last straw. A drop that could condemn the Italian economy to economic recession, given the rapid spread of the virus and the force with which it affects the citizens of the infected areas.

Francisco Coll MoralesEconomist

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