The pandemic dealt a severe blow to the Italian people and their economy. GDP fell by nearly 9 percent in 2020, with much larger drops for contact-intensive services. Public and corporate debt increased strongly and preexisting vulnerabilities have likely worsened. The government is prioritizing resolving the health emergency and transforming the economy to lift productivity, improve social outcomes and strengthen resilience to future shocks and structural change. The large National Recovery and Resilience Plan—partly financed by sizable Next Generation EU resources—will be used to increase physical and social infrastructure. Outlook. GDP is expected to recover strongly in 2021–22 and to grow well-above trend over the medium term, supported by investment spending. Nonetheless, economic scarring could be sizable. The two-sided risks relate to how the pandemic progresses, the efficiency of investment spending and the extent of savings drawdown, with large costs associated with the downside.
The COVID-19 pandemic prompted unprecedented economic stimulus worldwide. We empirically examine the impact of a withdrawal of fiscal stimulus policies on the stock markets. After constructing a database of withdrawal events, we use event study analysis and cross-country regressions to assess the difference between the pre- and post-event stock price returns. We find that markets react negatively to premature withdrawals—defined as withdrawals at a time when the daily COVID cases are high relative to their historical average—likely reflecting concerns about the withdrawal impact on the prospects for economic recovery. The design of a successful exit strategy from COVID-19 policy responses should account for these concerns.