Italy tourism season is crucial for post-Covid recovery

The fact that Italy was the first European country to be hit hard by the Covid-19 pandemic seems a distant memory. Will Italy now be the first in the European Union to stage a spectacular recovery?

Early last year, as the world watched in horror, Italian hospitals were filling fast and the number of Covid-19 victims surged from one day to the next. The situation then repeated itself in other countries, but Italy remains one of the hardest hit.

A year and a half later, Italy will soon reopen for tourism once again, in what could turn out to be a crucial moment not just for the country, but for the whole of the EU.

The hopes that this could mark the beginning of a strong recovery are high. The fact that Mario Draghi — known as the saviour of the euro for his famous “whatever it takes” promise in 2012 — is now prime minister should not be underestimated.

One pivotal change that boosts hopes for a swift recovery for Italy’s economy is that of the European Commission’s attitude towards fiscal spending. Austerity is gone out of the window, fiscal stimulus is all the rage now.

This is the case not only in the EU, but virtually everywhere else. The International Monetary Fund has forgotten its once-beloved austerity recommendations and is now all in favour of public investment.

The European Central Bank gives no sign (yet) that it plans to taper its asset purchases, with its chief economist Philip Lane telling OMFIF recently that he didn’t see inflation overshooting in the next 18 to 24 months.

Moreover, he hinted that asset purchases, not long ago considered “unorthodox” monetary policy instruments, could be here to stay: “Quantitative easing has been subordinated to maintaining favourable financing conditions. This is not an approach focused on volumes. It’s like adjusting interest rate policy.”

Is Italy’s luck finally turning?

All this bodes well for Italy. One reason why the country was doing so badly was its huge debt, which currently stands at almost 160% of gross domestic product.

If interest rates remain low while inflation is rising, Italy’s debt will shrink naturally. If, on top of that, economic growth takes off, the debt pile will become even more manageable.

Its huge debt was the main reason why Italy’s economy was so weak compared with others in the single currency area. If the country can reduce it, a strong and potentially prolonged recovery could be on the cards.

Source: Pixabay

Draghi’s government forecasts economic growth at 4.5% in real terms this year and 4.8% next year. The tourism sector, which was hard hit by the Covid-19 pandemic, represents around 14% of Italy’s economy.

Look for signs of strength in this summer’s grand reopening of the tourism season in Italy. The more there will be, the brighter the outlook – and not just for Italy, but for the EU as a whole.