Italy has approved a new stimulus package in its 2021 budget to foster an economic rebound from the recession caused by the coronavirus crisis, a government statement said on Sunday after a late-night cabinet meeting.

The ruling coalition, led by the anti-establishment 5-Star Movement and centre-left PD party, agreed a preliminary version of the stimulus package, a government source said, leaving final details to be hammered out.

Among measures to support the health and education system, the government will set up a 4 billion euro ($4.7 billion) fund to compensate companies worst hit by coronavirus lockdowns.

The budget also extends temporary lay-off schemes for companies with workers on furlough and offers tax breaks to support employment in the poor south of the country.

Italian Prime Minister Giuseppe Conte announced new measures to curb the steady spike in COVID-19 cases over recent weeks. The prime minister illustrated the new measures during a press conference in Rome, Italy, on Tuesday.

One of the European countries worst hit by the pandemic, Italy has forecast a 9% economic contraction for 2020 and a budget deficit equating to 10.8% of gross domestic product.

The expansionary package is expected to keep Italy’s deficit next year to 7% of economic output, up from a 5.7% forecast in April, reflecting the additional spending. Italy has forecast economic growth of 6% in 2021.

Expansionary measures next year will total 40 billion euros, including cheap loans and grants from the European Union’s Recovery Fund, Gualtieri told lawmakers this month.

Meanwhile, Italian industrial output rose a much stronger-than-expected 7.7% in August from the month before, data showed, a fourth consecutive monthly gain following the end of the country’s coronavirus lockdown.

A Reuters survey of 18 analysts had pointed to a rise of just 1.3%. July’s data was revised down slightly to show a 7.0% increase, originally reported at 7.4%.

August’s data takes seasonally adjusted output levels back to around where they were before Italy was hit by the virus outbreak in February.

Production was down just 0.3% on a year-on-year basis compared with August 2019, national statistics bureau ISTAT reported.

That followed an 8.3% year-on-year drop in July, revised from a previously reported -8.0%.

However, industrial production is often volatile in July and August, ISTAT cautioned, when many factories are closed for the summer break and it is hard to make accurate seasonal adjustments to the data.

In the three months to August, industrial output in the euro zone’s third largest economy was up 34.6% compared with the March-to-May period.

Production rose across the board in August, ISTAT said, with output of consumer goods, investment goods, intermediate goods and energy products all increasing from the month before.

The government of the anti-establishment 5-Star Movement and the centre-left Democratic Party forecasts a full-year 2020 GDP decline of 9%.

Most independent forecasters expect an even steeper, double-digit drop.

Italian industrial output fell by around a quarter during a steep double dip recession between 2008 and 2013.

It regained only a small part of that during a modest recovery in the subsequent years, which has now been disrupted by the coronavirus emergency.

Separately, Italy has approved the creation of a new company to house the assets of troubled airline Alitalia as the government presses ahead with a plan to nationalise the company.

The nationalisation plan, which was delayed by political infighting, will now need to be approved by the European Commission (EU).

The economy, industry, transport and labour ministers signed the decree setting up the new company. “Italy’s new flagship carrier was born today,” Transport Minister Paola De Micheli said.

Alitalia has endured 11 years of difficult private management and three failed restructuring attempts, problems exacerbated by the coronavirus crisis that has devastated the global airline industry.

Italy’s business lobby Confindustria said on Saturday it saw just a “partial” rebound for the country’s gross domestic product (GDP) in 2021 after an expected 10% contraction this year, as the coronavirus epidemic still loomed.

Confindustria’s research unit CSC said a recent spike in new COVID-19 cases was a source of uncertainty and a cause for expected economic weakness in the last quarter of this year.

“A recovery of GDP should restart in a gradual fashion from start-2021, on the condition that the COVID-19 spread is contained in an effective way,” it said.

Reuters