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Bank of Italy says coronavirus may have significant impact on growth

BRESCIA, Italy (Reuters) - Measures to counter the spread of the new coronavirus that first emerged in China could have a significant impact on the Italian economy, adding to the marked negative risks to growth projections, the Bank of Italy said on Saturday.

FILE PHOTO: Bank of Italy Governor Ignazio Visco speaks during a meeting in Rome, Italy, October 31, 2017. REUTERS/Remo Casilli

Italy has the world’s third-largest national debt, which runs at more than 1.3 times the country’s domestic output. The performance of the economy is important for the sustainability of the public debt.

The International Monetary Fund said last week that Italy’s public debt will remain around record highs in coming years and then rise.

Italy’s central bank is trying to assess the epidemic’s impact on the domestic economy but this is difficult to do due to uncertainty over how long the effects will last, governor Ignazio Visco told the annual Assiom-Forex conference of Italian financial market participants.

“The impact could be temporary and limited for both the European and the Italian economy to a few decimal of a percentage point in terms of lower growth in the aggregate demand,” he said.

“But a more significant impact cannot be ruled out,” he added.

Visco stressed that China’s presence in the global economy was now much bigger than at the time of the SARS outbreak in 2002-2003 - China’s contribution to global gross domestic product has quadrupled since then.

He also noted the risk of “a small de-globalization”, with people moving around less because of contagion fears and uncertainty over future demand holding back investments.

Visco said an information campaign would be key to avoiding unwarranted reactions.

The World Health Organization has declared the coronavirus epidemic a public health emergency of international concern, triggering recommendations to countries aimed at curbing cross-border spread of disease, while avoiding unnecessary interference with trade and travel.

Restrictions to travel and trade are seen putting a brake on both Chinese and global economic activity in the first quarter.

The Italian economy - the euro zone’s third-largest - unexpectedly contracted by 0.3% between October and December, following a modest 0.1% expansion in the previous quarter.

Speaking at the same event, Economy Minister Roberto Gualtieri expressed confidence that Italy’s economy would pick up its pace this year after a setback at the end of 2019 which he attributed in part to temporary factors.

“Leading indicators seem to point to a recovery in the first half,” he said.

Visco, however, said “significant downside risks” hung on the central bank’s expectations of very low growth in Italy in 2020 followed by an improvement in 2021-2022.

“Much will depend on the performance of the global economy and of our main European trading partners,” he said.

Reporting by Valentina Za and Andrea Mandala; Editing by Hugh Lawson