March 12, 2020 / 10:03 AM / in a month

Italian businesses count heavy cost of coronavirus lockdown

MILAN/ROME (Reuters) - Even if Italy’s draconian measures to stop the spread of coronavirus prove successful, they will leave an economy in tatters, with small and medium-sized businesses the hardest hit.

A bike is pictured at an empty street, on the third day of an unprecedented lockdown across of all Italy imposed to slow the outbreak of coronavirus, in Rome, Italy, March 12, 2020. REUTERS/Alberto Lingria

Responding to the spread of the disease in Europe’s worst affected country, the government has banned all non-essential travel and public gatherings until April 3 and closed schools and universities nationwide.

“The right decision is to stay at home,” Prime Minister Giuseppe Conte said when he imposed the lockdown on Monday.

Most Italians are following his advice, with streets and squares deserted up and down the country of 60 million people.

Daily output in the euro zone’s third largest economy is some 15% below its normal levels, according to economist Lorenzo Codogno. Economy Minister Roberto Gualtieri warned on Wednesday of a “significant fall” in gross domestic product this year.

Behind the figures are thousands of businesses that risk closure as their vital daily liquidity dries up, casting huge doubt on Gualtieri’s promise that “no one will lose their job” because of the epidemic.

“If it carries on like this I will go out of business,” said Franco Giovinazzo, who runs Spazio Caffe in central Rome, looking at trays of uneaten food during what used to be a hectic lunchtime.

“If you don’t sell a pair of shoes today, they will still be good to sell in a month. But what can I do with this? I have to throw it all away.”

Giovinazzo was speaking on Wednesday, and things were about to get worse.

TURNING THE SCREW

That evening, Conte turned the lockdown screw even tighter, ruling all bars and restaurants must close until March 25.

He also shuttered most types of shops, all company departments not essential to production, as well as services such as hairdressers and beauty parlours.

Bars, restaurants, retail and tourism are probably the worst hit sectors, but businesses of all types are feeling the pain.

“The next three months are going to be terrible,” says Antonio Marzo, the owner of Indaco Project, which produces work automation computer software and hardware in the northern city of Bologna.

“Clients aren’t spending because they fear everything is going to grind to a halt, and we can’t even visit them because they are frightened of the virus,” he said, adding that if the situation doesn’t improve within a month he may have to send staff home on reduced pay.

Some 89% of Italians support the government’s crackdown, an opinion poll by the Ixe agency showed this week, with 78% saying they would back even tougher measures.

Marzo took the same view, saying the most important thing for business was a quick end to the epidemic, so he hoped the government would impose a complete shut-down of workplaces.

Some other firms, however, say this would be fatal.

Federico de Stefani, chief executive of Padua-based SIT, which makes safety systems for boilers and smart gas meters, said a shutdown would only be acceptable if it were coordinated across Europe.

“For us it’s vital to keep producing, invoicing and shipping our products on a daily basis,” he said. “It would be a totally different matter if we had to halt production, because clients outside Italy would look elsewhere for their supplies.”

Massimo Carboniero, owner of Omera, a firm that makes mechanical and hydraulic presses in the Veneto region, also said exporting companies like his own, exposed to international competition, would be worst hit by a shutdown.

LIQUIDITY CRUNCH

For businesses of all types, maintaining liquidity to pay bills, rent and wages is the top priority to stay afloat.

“Firms are running out of oxygen,” Carboniero said.

The government has promised to backstop banks to allow them to suspend clients’ debt repayments, but its package of measures has not yet been approved and details remain sketchy.

Italy’s lenders have a crucial role in keeping the economy alive but tight rules aimed at preserving financial stability limit the support they can provide.

They took years to repair balance sheets following the previous economic slump which ended in 2014 and turned sour almost a fifth of all bank loans.

Since then the banks have kept a tight lid on lending, shunning riskier borrowers, and the virus crisis is expected to exacerbate the trend.

The industry is under siege on multiple fronts.

The recent spike in Italian bond yields hurts the value of banks’ sovereign debt holdings, the recession risks stoking problem loans, while market turmoil and the plunge in confidence will hit the income they get from selling financial products.

Those at the sharp end are demanding that the government step in immediately.

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Mauro Frascati, who runs the Bindi clothes store in central Rome, said it should abolish sales tax and slash all other taxes or his shop and many others would go under.

Mario Monfreda, owner of the nearby Larys restaurant, is even more drastic.

“This is going to cause poverty and misery,” he says. “More people are going to die as a result of the economic crisis this will cause than the virus itself.”

Reporting by Valentina Za in Milan, Crispian Balmer and Gavin Jones in Rome; Additional reporting by Stephen Jewkes in Bologna and Angelo Amante in Rome; Editing by Andrew Cawthorne

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