Vaccines and relaxing restrictions are ‘working magic’ on business and consumer morale
A rapid rise in economic sentiment in Italy is helping Europe’s recovery from the coronavirus pandemic to accelerate, with measures of confidence, hiring and holiday bookings all sharply up in recent weeks. Data published on Friday by the European Commission showed that Italy’s economic sentiment index rose 11 points from the previous month to 115.8 in May — by far the fastest monthly increase across all major eurozone economies and Italy’s strongest reading since 2000.
That came after separate recent data showed that job postings on the website Indeed this month hit their highest level since the start of the pandemic, and by mid-May short-term rental accommodation bookings were at their strongest since last summer, according to AirDNA, a company that tracks bookings.
The pandemic hit Italy’s economy earlier and more severely than other large eurozone economies. Last year Italy’s economy shrank 8.9 per cent, the second-largest contraction after Spain, and it still has further to go than Germany and France to recover its pre-pandemic scale. The resurgence of the virus in late 2020 and early 2021 plunged Italy — along with other major eurozone economies — into a double-dip recession.
But economists expect a return to growth across the eurozone in the second quarter of this year as vaccination rates rise and Covid-19 restrictions are eased. The European Commission forecast last month that Italy’s economy would grow 0.5 per cent in the second quarter, below the 0.9 per cent average across the eurozone.
But the more recent sentiment and high-frequency data indicators suggest Italy is set to do better than that, economists said. Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said Italy’s economy was “roaring back to life”. “The rebound is now truly under way in Italy and [we] expect GDP in [the second quarter] to be stronger than our previous forecast,” he said.
Paolo Pizzoli, senior economist at ING, expects Italy’s economic growth in the second quarter to “turn out stronger than previously anticipated, possibly north of 1 per cent quarter-on-quarter”. The economy’s reopening and vaccination progress are “working their magic on both business and consumer morale”, he said.
Daniela Ordonez, economist at Oxford Economics, said it was “urgent” for the EU to introduce a bloc-wide health pass, particularly for countries like Italy which are reliant on international tourism. But Pizzoli said that domestic tourism “should offer a decent hedge” to the lack of foreign visitors, as it did last summer.
Data suggest that Italy’s domestic leisure and hospitality industry is picking up strongly after the end of lockdown. Visits to retail and entertainment venues are higher than most other major eurozone economies when compared with pre-pandemic levels, according to Google mobility data, and by late May had hit their highest level since summer last year.
Ordonez said that new Italian prime minister Mario Draghi’s economic plan and the disbursement of EU recovery funds “will be crucial” for Italy’s prospects in the second half of this year. “The final plan presented by the government is larger than we expected last year, so we have raised our forecasts for the medium term,” she said. The European Commission’s sentiment index is based on businesses’ and consumers’ assessment of their economic and financial situation. Italy logged an improvement across all sectors, including the worst-affected services sector.
The figures came as France’s economic output in the first quarter of this year was revised downwards. Initial estimates suggested that the French economy had expanded 0.4 per cent quarter-on-quarter in the first three months of this year, bucking the broader eurozone trend. But on Friday updated figures showed that French output contracted 0.1 per cent — so it joined Germany, Italy and Spain in recording a technical recession, defined as two consecutive quarters of negative growth.