Exclusive: Italy Treasury sees 2020 GDP falling around 3% amid coronavirus chaos - sources

By Giuseppe Fonte and Gavin Jones

ROME (Reuters) - The Italian Treasury currently expects the economy to contract around 3% this year, hit by the lockdown imposed to fight the country's coronavirus outbreak, two sources familiar with the matter told Reuters on Friday.

The sources stressed that the situation is highly uncertain, saying the internal Treasury estimates are based on a scenario in which the restrictive measures that have hit activity begin to be gradually eased around the end of April.

Among a raft of measures intended to keep Italians in their homes, the government has closed all schools, bars, restaurants, sporting events and public gatherings.

The measures are officially due to be lifted between March 25 and April 3, but with coronavirus deaths continuing to grow, Prime Minister Giuseppe Conte said on Thursday the curbs will be extended, without giving further details.

Both sources, who asked not to be named, said the government's annual forecasting exercise that forms the basis of its budget commitments to the European Union could be delayed from the usual end-April deadline, as part of a broad EU-wide decision.

"The whole EU budget planning exercise could be scrapped and in this case Italy wouldn't have to present the forecasts by the end of next month, this is something being discussed at the EU level," one of the sources said.

The Economy Ministry declined to comment.

Given the uncertainty over when lockdowns will be lifted both in Italy and abroad, the Treasury is working within a wide GDP forecasting range. One of the sources said this spanned around -2% in a best-case scenario to -3.7% is a worst-case one.

The projections incorporate the effect of an emergency, 25-billion euro stimulus package adopted by the government earlier this week, which is expected to reduce the GDP drop by around 0.4 percentage points, both sources said.

More than 3,400 people have died in Italy since its coronavirus outbreak came to light on Feb. 21, the highest death toll of any country. More than 41,000 people have tested positive for the virus.

Earlier on Friday, the Milan-based think-tank REF forecast the euro zone's third largest economy would shrink by 3% in the first quarter from the previous three months, and contract by a further 5% in the second quarter.

"A rebound is possible from the third quarter," REF said in research note, adding that this would depend on "the evolution of the epidemic and the economic policies adopted."

It said it was too soon to make a forecast for 2020 as a whole.

One of the sources who spoke to Reuters said the REF projection may be too pessimistic for the first quarter, as growth appeared to be holding up quite well in the first half of the quarter, before the restrictions were gradually imposed.

(Editing by Crispian Balmer and Frances Kerry)