Covid-19: How are Italian businesses tackling unique financial challenges?

For even the most robust European economies, the Covid-19 pandemic has wreaked havoc. As cases start to rise once more in many nations, governments and policy makers are facing up to the unwelcome prospect of yet further economic damage. But the initial fiscal impact is already being felt with countries such as Italy, Spain and France all spiralling into recession in Q2 2020.

It is these three Mediterranean nations that are poised to record the worst downturn out of the 19 Eurozone members. In data published by Italian national statistics agency Istat, GDP fell by 12.8% in Q2 compared to the previous quarter – and 17.7% to the same quarter in 2019. With Covid-19 still at large in Europe, it’s hard to see how the figures will improve before 2021 too.


The economic challenges facing Italian businesses

For the Italian economy, there was almost no precedent for what Covid-19 would bring – not in modern times, especially. As the first European nation to go into lockdown, there were no other countries to learn from. France, Spain, Germany, the UK and others would follow. As shops and factories closed, investment plummeted and consumer spending was scaled right back.

The Istat data shows that consumer spending dropped 11.3% and exports were down by more than a quarter. All the factors added up to a record contraction – worse than first thought. The signs of improvement seen since the easing of those first restrictions are welcome. At the same time, however, there is still a lot of ground for businesses to make up in the months ahead.


What are businesses doing to minimize the impact?

In research from global audit and consulting firm RSM Italy, businesses are taking multiple and diverse actions to minimize the substantial impact. For nearly two-thirds of those surveyed, the first and primary aim has been to perform an analysis of exactly how they are being affected. It is an action RSM Italy sees as more common among firms with higher turnovers (€15m >).

Many European governments – not just in Italy – went far beyond their usual intervention in an attempt to support businesses and the economy. It is no surprise, therefore, that half of Italian companies are making use of government subsidies and financial initiatives. Meanwhile, there’s also a notable shift towards the adoption of tech solutions to support home-working.

But the longer-term economic impact of Covid-19 is likely to be felt for many months to come – even changing the face of how some businesses operate. From the RSM Italy research, half of businesses are planning to negotiate and/or renegotiate contracts. But there is also a desire to improve tax planning, restructure and rethink the management and design of supply chains.


Italy’s future course amid fiscal and political fallout

The prevailing mood among Italian businesses, according to RSM Italy, is that business models will change because of Covid-19. But it is also concerning to note that more than a quarter are fearful of what the future holds – even in a post-pandemic landscape. And there are maybe one or two pressing reasons for there to be such negative expectations.

As the pandemic swept through the country earlier this year, the Italian government called out to the European Union (EU) for assistance. But even some pro-European politicians had started to wonder if that call had landed on deaf ears. Amid all the discussions around Brexit, there are fears that Italy could be moving in a direction that could end their relationship with the EU too. 

If it were to materialise, it could be calamitous for many Italian businesses – not least for those with significant cross-border operations. It could prove an unwelcome distraction as the country counts the cost of emergency fiscal measures. Until Covid-19 is crushed, however, we’re still to find out just what the future economic landscape looks like – and how long a recovery will take. 


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