For Italy, the econometric model developed by The European House – Ambrosetti indicates a 10.8 decrease in GDP for 2020, the third-worst in the 150-year history of the Italian Republic. For a worse drop would require going back to 1943.
Invoking the Schumpeterian concept of creative destruction in the current context risks being inappropriate. The International Monetary Fund is estimating a 4.9% recession for 2020 and never in the last 60 years has the world suffered such a major decrease (in 2008 it was -0.1 and now -4.9, fifty times greater), fifty times higher than that in the wake of the Great Crisis in 2008. For Italy, the econometric model developed by The European House – Ambrosetti indicates a 10.8 decrease in GDP for 2020, the third-worst in the 150-year history of the Italian Republic. For a worse drop would require going back to 1943.
Nonetheless, an indispensable pre-condition for starting again is the ability to look towards the future not only with apprehension, but also ideas for innovation, relaunching and development. If the world changes, companies must also change. In our own small way, we have also attempted to provide an example in designing a framework for our Cernobbio 2020 through a massive injection of technology, about one hundred people physically present at Villa d’Este, many hundreds more connected via remote in videoconferencing, seven international hubs with several dozen participants in each, a number of presentations to be held in digital hologram and a wideband investment in Cernobbio with a very powerful wifi connection.
We need to begin now to plan what we would like to be in the future and pave the way for getting there. And here is where Schumpeter’s creative destruction makes its entrance. COVID-19 has brought to light and exacerbated all the pre-existing problem areas and it has made us brutally aware of them. We can no longer ignore them and we must take them on with energy, decisiveness and planning.
The first two quarters of 2020 were characterized by an understandable collapse in confidence. The indicator of sentiment about the current situation precipitated to -60.8 in March and -59.8 in June, indications of pessimism never seen in the past.
Phase 2 led to a 70% reduction in pessimism. In September, the indicator stands at -21.1—still very negative but with a decidedly encouraging outlook.
The indicator shows a moderate sign of confidence about the six-month perspective: -63.4 in March, -63.0 in June and, today, -1.8. It is possible that in the fall there will be a second wave of the virus and new restrictions, but the intense efforts of the government over recent months will allow us, hopefully, to face any relapses more prepared. For example, the number of ICU beds has doubled from 8.6 per 10,000 inhabitants to 15.6.
While on the economic front the leap in confidence for the next six months is significant, gray areas still exist regarding employment and investment.
Once again, it is important to stress that, compared with the peak of the crisis, pessimism has dropped by two-thirds. Confidence regarding the 6-month outlook for employment has gone from -56.5 in the second quarter to -22.8 in the third and confidence regarding investment from -60.1 to -18.4.
Pessimism is decreasing, therefore, but it still remains. To have greater optimism over this time frame—above and beyond the uncertainty of how the pandemic will evolve—what is needed, perhaps, is for government policy to shift from simply “playing it by ear” to a long-term perspective and begin to compose an image of Italy for the future.
Stagnant productivity, bureaucracy, a slow civil and administrative judiciary system, lack of infrastructure in the country’s south, growing inequality, fragmentation of the job market and lack of opportunity for young people: COVID-19 has had the dubious honor of putting before us all the critical factors which, for the last twenty years, we have failed to take on. If we don’t do it now, when will we?
We will be discussing this and many other questions linked to relaunching Italy at the yearly event in Cernobbio, from Friday, September 4th to Sunday, September 6th.
Managing Partner and Chief Executive Officer,
The European House - Ambrosetti