ifo-N26-Economic Monitor: A Glance on Italy

During the first lockdown in mid-April 2020, aggregate income decreased by about 25% compared to January 2020. Aggregate income recovered to around 80% over the following summer and increased further to 95% in November. Interestingly the second lockdown in November 2020 did not lead to a decline in aggregate income compared to pre-pandemic levels. In contrast, income remained almost at pre-pandemic levels at the end of 2020 and during the first quarter of 2021.

In March 2020 aggregate spending started to decrease sharply plunging to 50% in mid-April. Aggregate spending started to recover slowly, but persistently, settling around 70% in mid-August and remaining at this level for the rest of 2020 and the first quarter of 2021. Possible explanations for the sluggish recovery during summer 2020 despite most business closures having been lifted are avoidance of perceived health risks and inconvenient protection obligations by consumers as well as lower purchasing power among consumers due to the present income decline. Interestingly the second lockdown in November 2020 only led to a minor and delayed decline in consumer spending compared to the spending levels during summer. Hence current spending levels are still 20 percentage points higher compared to the low point during the first lockdown in spring 2020, but also 30 percentage points below pre-pandemic levels.

Consumers are changing the composition of their consumption baskets significantly throughout the years. Thereby spending on services and cash withdrawals were especially hit during the lockdowns plunging to almost 30% in April 2020 and 50-60% in November 2020 through March 2021.  Moreover, we see no immediate, but only a slow and incomplete recovery of service consumption and cash withdrawals after the lockdown in spring 2020, reaching only around 60-70% in August 2020. Consumers are obviously adjusting their behavior and remain concerned way beyond the point where shelter-in-place measures are lifted to reduce their risk of infection. Spending on durable goods decreased during the lockdown in spring 2020 and remained below pre-pandemic levels over the summer suggesting that economic uncertainty among consumers added to the spending decline. In previous economic crises, consumers usually reduced their spending on durable goods as they postponed higher expenditures to hedge against economic uncertainty such as job loss or income decline. However, economic uncertainty among consumers seemed to decline at the end of the 2020 and the beginning of 2021 as spending on durable goods recovered to even above pre-pandemic levels. Furthermore, the large increase in consumption of durable goods during the Christmas period and the first quarter of 2021 offset the decline in services and cash withdrawals such that on aggregate there was only a minor and delayed spending decline during the second lockdown on the aggregate. Spending on non-durable goods remained relatively stable over the years, fluctuating between 80-100% compared to pre-pandemic levels. Current spending levels are around 55% for services and cash withdrawals, 95% for non-durable and 100% for durable goods compared to January 2020. Taken together the results suggest that health risk and lockdowns are the main drivers of the decline in spending on services and cash withdrawals. Additionally, economic uncertainty among consumers as measured by durable goods consumption seems to have added to the spending decline, but decreased at the end of 2020 and the beginning of 2021.

Consumers are accumulating savings over the years and across countries. Especially during spring 2020 (i.e. weeks 11-25) as well as at the end of 2020 and the beginning of 2021 (i.e. since week 47), deposits of private consumers increased. Trends and levels are similar across countries with Austria, Germany and France exhibiting slightly higher increases in deposits compared to Italy and Spain.