One week ago, a team of analysts at Nomura research covering the European economy made a bold prediction: Italy's economy would enter a technical recession during Q1 as the fallout from COVID-19 reverberates across global supply chains upon which the country's prosperous North depends.
At the time, Italy had only 3 confirmed coronavirus cases, and it appeared that the outbreak would mostly pass it by without much of a direct economic backlash. Fellow economists commiserated about this 'aggressive' call, and speculated about the impact that declaring a 'technical recession' in the eurozone's third-largest economy might have on consumer sentiment across the Continent.
On Tuesday, that picture was looking very different. And while the call appeared aggressive a week ago, today, if anything, it might not prove weak enough.
Though the virus officially spread to the Italian South on Tuesday, it has mostly affected the affluent North, particularly the regions in the "splayed" top of the Italian 'boot'. So far, the 100,000 Italians under army-supervised lockdown are located mostly in towns and villages. Still, the fallout For Lombardia, Veneto, Emilia Romagna and Piemonte could have serious repercussions. Veneto and Lombardia alone constitute two of the three most important provinces in terms of contribution to overall GDP.
The fact that the virus has made it to Milan is particularly alarming. The city is the 12-most densely populated in Europe, and it's widely considered the center of Italian industry - Italy's New York City. 2.5 million people live in Milan, and there are 10 million in Lombardia, the surrounding province.
On a QoQ basis, Italy's economy contracted in Q4 (even if it climbed YoY). Another quarterly slide and Italy will be in what's called a 'technical recession', which is precisely that - two consecutive quarters of GDP decline.
While conventional wisdom would suggest that even a few week's worth of these broad-based shutdowns of schools and some public spaces like restaurants and sporting events would have an impact. Should the shutdowns expand to broader sectors of the economy - factories, offices etc. - then of course the backlash would be worse.
As of Tuesday, Italy had confirmed more than 300 cases, with the largest cluster in Lombardy, and 10 deaths. It's now officially home to the worst COVID-19 outbreak in Europe, though it might soon have some competition.
"In summary," the team concludes, "a week ago the downward revision to our forecast for a recession in Italy had looked like a bold call. Not any more. If anything, the risks to our forecasts for Italian growth this year are now tilted firmly to the downside."
But at this point, even the virologists are having a hard time predicting what's going to happen next. So what hope does Wall Street have?