ISA Risk Alert: The Coronavirus Crisis and the European Economy

Summary

One of the first places that the coronavirus (Covid-19) spread to after it emerged in China in early 2020 was Italy, which recorded its first cases in mid-February.  Since then, the number of cases in Italy has soared to more than 13,000 (the highest number of cases outside of China), with more than 830 people having died from the virus in that country.  Worryingly, the number of cases of the coronavirus elsewhere in Europe has been rising sharply, with the largest number of cases found in France (2,300+), Spain (2,300+), Germany (2,000+) and Switzerland (700+).

This crisis has led to the Italian government establishing a quarantine of the entire country, after initially limiting the quarantine to northern Italy.  Meanwhile, as the number of cases outside of Italy has risen sharply, governments have moved to restrict travel and public gatherings in many other parts of Europe in recent days.  Scientists expect that the number of cases of the coronavirus in Europe (and around the world) will rise dramatically in the coming months, indicating that the measures put in place in Italy and elsewhere will soon be replicated across Europe, causing massive harm to the region’s economy this year.

The Impact on the Italian Economy

Italy has been the world’s worst-performing large economy for the past two decades, so this crisis will worsen what was already a very poor economic outlook for Italy in 2020 and is certain to push the country into a deep recession.  

The Impact on the European Economy

Even before the coronavirus crisis struck, the European economy was expected to fall into a recession in the first half of this year.  Now, with domestic demand weakening and export demand plummeting, Europe could experience a very deep recession this year.