The Strategist

Fitch: Coronavirus spread in EU adds to the region’s economic risks

03/06/2020 - 07:06

Spread of the coronavirus COVID-2019 in the EU poses risks to the Eurozone economy, where Italy suffered the largest outbreak, analysts at Fitch, the international rating agency, say. The experts note the importance of urgent political measures for economic growth.

The number of cases in Europe is relatively less than the total in the world: about 4.2 thousand in the EU and the Eurozone, including the UK, against a total of more than 95 thousand. Italy accounts for 75% of cases of infection, where, according to the latest data, there are 3.8 thousand cases, and the number of cases is growing daily.

The initial risks were related to the problems associated with China, mainly the supply chain interruptions of European manufacturers, China's final demand and tourism. "But Italy’s restrictive measures indicate a possible impact on the services sector and the structure of domestic consumption," the Fitch said.

There has been a noticeable decline in tourism From northern Italy, which has been hit hardest by the coronavirus, while the Confimprese association has reported a 40% drop in retail sales in the first week after the outbreak. Agency analysts note that lower production capacities of Chinese enterprises continue to affect the industry, but European manufacturers are less prone to this.

Restrictions on travel and tourism are beginning to have a strong negative effect on those economies where this sector makes a significant contribution to GDP, especially in Italy. A positive factor for the EU as an importer may be a decrease in raw material prices, the agency said in a release.

Fitch notes that fiscal measures will play a significant role. Since the Eurozone lacks centralized automatic fiscal stabilizers, the response will be taken by countries on their own, while their capabilities will vary significantly, the agency said. Analysts also admit increased political instability in the event that the health system is unable to cope effectively with the problem.


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