Vaccine or lockdown? The impact of Next Generation EU in different COVID-19 scenarios

Introduction

What is the nature of the current macroeconomic context, as we find ourselves between new waves of infection and the race to identify vaccines and treatment?

And what impact could Next Generation EU have under these circumstances?
The new brief investigates the current phase we are going through, with a focus on the impact that using the Next Generation EU programme could have.

Read the Key message from the report and download the document for further information.

The macroeconomic context is still highly uncertain. On one hand, the second wave of infections could result in local lockdowns. On the other, the race to identify vaccines and treatment continues.
The impact of Next Generation EU over the next 3 years will depend on spending power and epidemiological progress.
Impact estimates are given for 3 different infection evolution scenarios, base, optimistic and pessimistic.
Depending on the scenario, investment financed through European funds would see the average annual Italian GDP growth rate up to one percentage point higher between 2021 and 2023, compared to the position without European funds.
Consequently, the employment market and public debt/GDP ratio dynamics would be improved.
The number of people in employment in 2023 could be more than 170 thousand higher compared to what might have happened by 2023 without the use of funds, depending on the scenario. The public debt/GDP ratio would be at least 4 percentage points lower.
The use of Next Generation EU proves to be even more significant if the epidemiological situation worsens, or if a second wave of infections results in a new swathe of lockdowns.
In this case, using European funds would guarantee a positive real GDP growth rate also in 2021, thereby avoiding a second recession for Italy and a further deterioration in the public debt/GDP ratio over the coming years, compared to the already high level forecast for 2020.
All this is dependant on how effective the measures are at structurally changing the economy’s growth rate, through investments and reforms to improve the overall productivity of the economic system. The real challenge could come after 2023.

Read the brief (Available in Italian)