Virus outbreak hits weakened Italian economy where it hurts

MILAN (AP) — The focal point of the coronavirus emergency in Europe, Italy, is also the region’s weakest economy and is taking an almighty hit as foreigners stop visiting its cultural treasures or buying its prized artisanal products, from fashion to food to design.

Europe’s third-largest economy has long been among the slowest growing in the region and is the one that is tallying the largest number of virus infections outside Asia.

Entire towns are quarantined in the north, the heart of Italy’s manufacturing and financial industries. Airlines have cut back on flights to the country, meaning millions fewer travellers are expected – causing billions in losses for hotels, restaurants, tourist sites and many others.

The turmoil is expected to push Italy back into recession and weigh more broadly on the European economy, with trade-focussed countries like Germany, France and Britain also struggling with the global disruption to supply chains and travel.

“I am getting cancellations through June,’’ said Stefania Stea, who has two hotels in Venice, where the Carnival cancellation emptied the city in a single afternoon and sent occupation rates plunging to an unheard of one to two per cent.

Stea, who is vice president of the Venice hoteliers association, is tallying cancellations worth EUR7,000-10,000 a day for her 39 rooms — all currently empty.

“The only reservations I am getting are for Christmas or New Year’s Eve, with people hoping for a deal.”

Two waiters wait for customers in a restaurant at St Mark’s Square in Venice, Italy. PHOTO: AP

Italy’s economy is forecast to shrink this quarter, with Bocconi university economist Francesco Daveri predicting a 0.3 per cent. That would match a surprise shrinkage in the last quarter of 2019 and would put the country in a technical recession.

The country already shed four per cent of gross domestic product (GDP) in back-to-back recessions in the first two decades of the century, and recovery has been stalled for the last two years.

Banks are still trying to burn off a pile of bad loans left over from the financial crisis a decade ago and the government’s public debt load – the highest in Europe after Greece – limits the country’s ability to significantly ramp up spending to help the economy if needed.

The tourism and luxury industries were the first, but not last, to sound the alarm.

Tourism officials are projecting 32 million fewer foreign visitors and a loss of EUR7.4 billion in the second quarter alone, before the arrival of the make-or-break summer travel season. Foreign airlines are cancelling flights to Milan, Italy’s financial and fashion capital, and to Venice, a top destination.

The tourism industry decried what it described as confusing and hyperbolic media coverage of the virus outbreak, creating more concern among Italians, travellers and business partners than perhaps warranted.

“Unfortunately, we are paying the price of a media communication that has been much more lethal than the virus,’’ said President of tourism association Confturismo-Confcommercio, Luca Patane.

Even before the virus arrived in Italy, luxury fashion officials projected a two per cent first-half contraction. That was based solely on weaker spending by Chinese consumers, who are the biggest luxury buyers in the world accounting for 35 per cent of global sales.

Now the virus, which began in China, is discouraging well-heeled shopping tourists to Milan’s MonteNapoleone district and Rome’s via Condotti, while spreading to the United States (US) and European neighbours, key export markets.

“It is starting to impact Japan and Korea, and most probably will impact Europe and other countries as the virus spreads. We hope it will not spread too fast,’’ said partner at consultancy group Bain, Federica Levato.

Bain is, for now, maintaining its forecast for three to five per cent year-on-year growth in global luxury goods sales through 2025. Levato noted that in the 2003 SARS epidemic, spending rebounded “as soon as the crisis passed”.

How deeply the virus will hit the rest of the Italian economy remains to be seen.

Authorities are trying to help with a EUR7.5 billion plan approved this week, including short-term unemployment schemes to help small businesses. The European Central Bank could trim its interest rates when it meets next week, but they are already near or below zero, and the disruption to business is unlikely to be helped much by cheaper credit.

Making things more complicated is a lack of knowledge about the virus’s true risks and whether it is spread, for example, through exported goods.

Industry groups and policymakers have signalled incidents of importers of Italian goods in other European Union (EU) countries seeking additional certification that the goods are virus-free.

The Coldiretti agricultural lobby on Wednesday said that “unjustified documentation” had been requested from importers of aged cheese in Greece, lettuce sent to Poland and fruit to Kuwait, while shipments of Italian-grown apples are blocked at the border with Ukraine.

Coldiretti also said its producers had reported “numerous cancellations without good reasons that struck an entire range of ‘Made in Italy’ foodstuffs”.

The coronavirus emergency is damaging Italy’s image abroad, Coldiretti said, putting at risk a sector worth EUR538 billion, from farm producers to grocery shelves to restaurants.

In a bid to limit damage, agricultural association Confagricoltura met this week with government officials from countries including Britain, France, Germany, Hungary and the Netherlands.

And it is not only food products that have fallen under suspicion. The head of a steel making company said a customer in Germany had requested that wooden shipping containers be sanitised.

The apparently ad-hoc requests are out of line with prevailing medical advice.

The World Health Organization (WHO) emphasised that the virus is spreading person to person “and nothing indicates that other routes of transmission, such as via parcel or cargo freight, are contributing to onward spread in any way”. It added that there is no evidence to suggest food products pose a risk.

Foreign Minister Luigi Di Maio this week protested against what he called indiscriminate limits on Italian exports. “It is not acceptable to block Italian goods or ask for a certificate of guarantee beyond what exists in commercial agreements,’’ Di Maio said on Tuesday. “Merchandise does not have anything to do with the virus.’’