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Caution shadows Italian coronavirus business recovery

29 June 2020: as the Italian economy emerges gradually from lockdown businesses are left counting the cost of the coronavirus crisis, with some sectors fearing they might never recover to pre-COVID levels. Mark Taylor reports.

Italy was the epicentre of the European coronavirus outbreak and one of the world’s worst-hit countries, causing it to enter lockdown earlier and for longer than anywhere else.

The second phase of the re-opening is now underway as it attempts to reignite business in a country that was struggling with unemployment and productivity even before the pandemic struck. Europe’s third-largest economy is expected to contract significantly, the government said this week, with up to half a million jobs lost and an 8% drop in GDP. 

Tourism, Italy’s largest industry, is expected to suffer substantially as social distancing measures and restrictions on travel impact services for the foreseeable future. More than 216m tourists visited the country’s 55 UNESCO world heritage sites, beaches and ski routes in 2019, and with 4.2 million people employed in the sector, it accounts for 12-13% of GDP.

It will take "one or two years to get back to where we were," Italy's tourism secretary Lorenza Bonaccorsi said, stating that might be the time to move away from mass holidays to some “more respectful of the environment”.

"You will not see the long queues outside the Colosseum you used to," Bonaccorsi told AFP.

According to Statista, across Italy sectors such as textile, transportation, hotels, restaurants, shows, and sporting events will suffer the biggest hit.

Timetable for recovery

The quarantine initially began in the northern region of Lombardy in late February, as it became clear the virus was spreading rapidly outside of China’s Wuhan province, where it is believed to have originated. Businesses, schools, then the entire country shut down by government decree on March 11. 

By March 22, all factories were closed, with nonessential production halted until success in slowing the number of infections enabled a partial loosening to be enacted two months later. 

Accountants, along with lawyers, engineers, architects and other professionals, construction, manufacturing, wholesale and real estate workers were allowed to resume activity from May 4. A small selection of retail shops, museums and libraries were allowed to reopen on Monday, May 18.

It was intended that bars, restaurants and beauty salons would reopen fully at the start of June. As the large majority of deaths and cases were confined to Lombardy, however, some southern and central regions split from government guidance and promised to open services earlier.

 

Business outlook

Local businesses are happy to be serving customers again, but many are not optimistic about their long-term chances.

“We cannot offer anything beyond the basics, and it’s hard to work in a mask all day,” said Antonio Marcello, owner of barbershop Marcello Barberie in the northern district of Rome. “Our customers are loyal, but there are issues over rent and nobody knows what is going to happen in one month let alone six or 12 months.”

His shop was permitted to open earlier than planned, under the proviso that customers book ahead. He introduced a fixed €20 fee with mandatory hairwashing, and those having a trim must wear masks even in the chair.

It is a similar story in shopping centres, where visitor numbers are down, masks are mandatory and hand sanitizer is placed at the entrance to every store.

Help at hand

The Italian government promised a €25bn rescue package for business and industries, which includes compensation funding for employees, an estimated 25 million of whom are now out of work. It covered a €100 bonus for lower-paid employees, paid directly by employers along with regular wages in April.

Some firms are going beyond regulations to protect the welfare of their staff, offering bonuses for €500 per month when factories reopen, and not cutting end-of-year bonuses if an employee has been sick or absent due to COVID-19.

Luxury car manufacturer Ferrari is running a “Back on Track” plan to reopen two Ferrari factories. It will allow for health screenings of all employees and app tracking to determine whether individuals have been exposed to the coronavirus.

Companies are prohibited from laying off workers for the next two months without “justified objective reasons”, under a new law. 

The self-employed and freelancers with mortgages can request an 18-month suspension on payments if they can prove that their incomes fell by at least one third. However, banks do not necessarily always agree to this.

A variety of taxes are being paused for sectors and professions deemed most affected by the crisis. Businesses in the worst-affected sectors can suspend payments of social security and welfare contributions and compulsory insurance payments, although the government expects to start collecting these taxes again in May.

“The prevailing sentiment among Italians is concern about the economic impact of the crisis,“ said Marco Catena, partner at McKinsey’s Milan office. “Most Italian consumers believe that the impact of COVID-19 will last longer than four months. Looking beyond COVID-19, consumers expect to reduce in-person activities, such as travelling and going to the mall, while they adopt new digital activities such as video conferencing and online streaming.”