Italy, Europe and the Global Recovery in 2021

IMF News, June 14, 2020

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The crisis is "like no other" because it is truly global:
- "By the end of 2020, 170 countries will have lower per capita incomes than at the beginning of the year—when as recently as January we projected positive growth for 160 countries."
Sectoral hit:
- Service sector hit especially hard—tourism, hospitality, and travel suffer dramatic blows.
- Resulting labor-market impact: unemployment concentrated at the somewhat lower-skilled end of the spectrum, with likelihood of elevated joblessness for these workers for quite some time.
Nature of the shock:
- The pandemic triggered "The Great Lockdown"—a stop to production and consumption—followed by a reopening phase.
- The pandemic’s global domino effect: examples cited include China, Asia, Italy, the United States, Brazil, South Asia (high risk), and increasing cases in Africa, including South Africa.

Scale of fiscal and monetary response:
- "10 trillion dollars up to now, with one third of this coming from the European Union."
- Massive liquidity injections and easing by major central banks; European Central Bank highlighted as "forcefully doing its job."
IMF actions and debt relief:
- "In six weeks, we have provided financial support to 68 countries."
- Debt-relief measures include actions for the poorest members and the G20 debt service suspension initiative covering "73 vulnerable countries."
Impact of policies on emerging markets:
- March: many emerging markets shut out of bond issuance.
- April and May: with large-scale measures, "emerging markets with good fundamentals could return and issue bonds"—critical financial lifelines for stabilization.

Forecasting and recent projections:
- "We will release a new forecast on the 24 th of June" (to reflect incoming data).
- April projection: "minus 3 percent for global growth in 2020."
- Incoming data suggests most countries are doing worse than previously projected; a small number are doing better but not enough to change overall direction.
Inflation, interest rates, and market divergence:
- Despite exceptional policy support, there are disinflationary pressures and "low inflation projected for a long time," as well as very low or even negative interest rates.
- Risk of divergence between financial markets (largely recovered to near pre-pandemic levels) and the real economy.
Structural and social consequences:
- Expectation of "bigger deficits and higher debt," more bankruptcies, higher unemployment (some structural), and higher levels of poverty and inequality unless acted upon.

Vaccine and treatments:
- Recovery contingent on vaccine and treatments; trials beginning "in June and July" with "the hope for a vaccine at scale by January or February."
Fiscal guidance from the IMF Managing Director:
- "please spend as much as you need. But spend carefully and keep your receipts: we don't want accountability to be lost."
- Warning: "must be careful not to withdraw the stimulus too fast" to maintain recovery momentum.
Structural opportunities to shape recovery:
- Digital transformation:
- Pandemic accelerated digital transformation "by two or three years" according to some experts.
- Europe urged to invest in digital skills, infrastructure, and adopt a "digital first" attitude (including digital government).
- Green transition and job-rich growth:
- Invest in labor-intensive, green programs—examples: reforestation, insulating buildings, urban renewal—to absorb low-skilled labor surplus and build future-facing businesses.
- Explicit statement: "we should not rebuild the economy of yesterday, when we can build the economy of tomorrow."
- Human capital and inequality:
- Strengthen resilience of people by investing in human capital; urgent need to reverse backsliding in education.
- "Without radical reform and investment in education systems, no country can hope to compete effectively in the economy of tomorrow."

Strategic role for the European Union:
- Europe’s fiscal support package characterized as money "that Europe will get from markets on the basis of its strength, and that it will distribute to member states on the basis of their needs."
- Opportunity to restart Europe's "convergence engine" stalled since the global financial crisis and to exercise leadership.
Priority actions for Europe:
- Invest in digital skills and infrastructure; adopt "digital first" across government and business.
- Use recovery to continue the pre-pandemic path toward low-carbon, climate-resilient growth.
- Implement labor-intensive green investments to create jobs for low-skilled workers.
- Invest in education and human capital to prevent long-term competitiveness losses.
Current stage:
- "Three-quarters of the world is in this stage, reopening."

Five areas for Italy to address:
- First, cut red tape in public administration.
- Second, efficiency of investment.
- Third, tax reform and tax collection for a more inclusive and equitable recovery.
- Fourth, regulatory easing to improve competitiveness.
- Fifth, regional disparities.
Endorsement of Italy’s role:
- High hopes for Italy’s Presidency of the G20 in 2021; Italy will chair during "the year of the recovery" and can influence choice between cooperation and fragmentation.

Suggested focus areas for the G20 under Italy’s Presidency:
- Advance the global trade agenda to prevent trade collapse and avoid higher costs, lower incomes, and increased poverty.
- Implement critical global legislation to tax the digital sector to align taxation with a digital future.
- Pursue ambitious debt sustainability measures to prevent debt from inhibiting global recovery, especially in countries with least sustainable debt levels.
- Revive the Paris agreement (implied as at-risk) and coordinate closely with partners in the UK.

Choice for history:
- Two possible historical judgments: preside over "the great reversal" (more poverty, fragmentation, less trade) or "marshalled a great reset, and a great renewal on a massive scale."
Final motivational appeals:
- Quotes used: "Fortune favors the brave" and Steve Jobs: "the people who are crazy enough to think they can change the world are often the ones who do."
- Closing charge to Italy: "Coraggio, Presidente."

Remarks by IMF Managing Director Kristalina Georgieva to Italy’s National Consultation, June 13, 2020.