The Impact of the pandemic on the economy and the circular economy

Global impact

As reported by the Institute for International Policy Studies (ISPI), the economic forecasts for the beginning of the year, published on 9 March this year by the European Commission, indicated that the European economy was set to remain on a steady and moderate growth path, continuing to record the longest growth period since the introduction of the euro in 1999.

This prediction has been supplanted by reality. The situation worsens as the wave of the Coronavirus epidemic spreads from East to West. And now the spectre of a great recession is actually going on by day, in economists’ forecasts. The only uncertainty: the scale of the consequences.

At the beginning of March, the OCSE published an assessment of the impacts of covid-19 on the world economy, predicting two scenarios, one in which the epidemic remained confined to China and the second, worse, with a pandemic spread. Two weeks later, this second forecast is the only one to remain valid.  In other words, world GDP is expected to fall by 1.5% compared to the forecast at the end of 2019, bringing global growth to 1.3%.  This to this day. Most of the fall in GDP would come from the direct effects of reduced demand, increased uncertainty and lower share and commodity prices.

Trade will contract by about 3 percent in 2020, affecting exports in all economies. All this without considering the chain deflationary effects caused by the collapse in global demand.

This analysis seems to be likely to be revised downwards. Indeed, the impact of COVID-19 on the Chinese economy, which could also be taken as a benchmark for other economies, is worse than initially expected. Analysts have revised down China’s growth estimates, with many now forecasting a decline in GDP in the first quarter and growth of around 3% year-on-year, compared with 6% of the year’s forecast.

If the economy recovers at the end of the second quarter, global GDP growth would fall by 1.0-1.5% in 2020.

In the case of a pandemic view that does not shrink with the summer, the economy will experience a shock of demand that will last for most of the year. Overall, this scenario would result in a recession, with global growth falling between -1.5% and 0.5% in 2020.

In conclusion, the current scenario of the pandemic leads to the conclusion that major economies would go into recession by 2020.

The impact in Italy

Also for the ISPI (Institute for International Policy Studies), in Italy, in full Coronavirus alarm, there are two scenarios.

The first leaves room for a shot, that would arrive next year anyway and assumes that the emergency of Coronavirus ends in May and indicates that, putting together 2020 and 2021, for Italian companies will be burned a total turnover of 275 billion euros, compared to the evolution that was foreseeable before the arrival of the epidemic (in fact, a turnover growth of 1.7% this year and 2% next year is expected). If the emergency ends in May, Italian companies could be able to recover a 1.5% higher level of turnover as early as next year than they would achieve in 2019.

If the end of the pandemic were to continue until the end of the year, thus shifting the start of the economic recovery, the production sectors would suffer and react differently, with a positive stimulus for the pharmaceutical/health and food sector and negative for automotive and tourism, as we are represented by Cerved.

The impact on the circular economy

This situation must lead us to analyze new paths or to accelerate the transformations already taking place including the transformations linked to the Circular Economy and that is to an economic system planned to reuse materials in subsequent production cycles, minimizing waste.

The situation of the following sectors must be taken into account in order to define the state of the circular economy: production, consumption, waste management, second raw materials, investment and innovation.

Each of these sectors are charged with indicators that can give an idea of the degree of Circular Economy achieved.

As indicated by the Circular Economy Network, the application of these indicators leads to the obtaining of a sum of the scores of each sector, which gives us “the overall circularity index”. The calculation of this index at European level seems to confirm for 2019 the first position of Italy, indicated by 100 points, followed by Germany at 89, France at 88, Poland at 72 and Spain at 71.

Here are some insights into the areas of greatest interest to companies involved in the creation of a circular economy.

Waste management

The per capita production of urban waste in Italy in 2018 was 499 kg/d of waste, substantially stable compared to 2016, compared to an average European production of 488 kg/ab.

In Italy, the recycling of urban waste is growing. In 2018, according to Eurostat data, it was 50%, in line with the European average: we are in second place, after Germany. On the other hand, the recycling rate of all waste is 68%, well above the European average (57%): we are in first place compared to the major European economies. Landfilling for Italy fell to 22% (a significant reduction from 48% in 2009): in line with the European average, but still high compared to Germany and France. Nevertheless, some long-known issues remain, such as delays in some territories in urban waste management and an unbalanced geographical distribution of treatment plants.

Critical issues that are exalted in this period of Covid-19 and, in this regard, the Lombardy Region has issued a decree (No. 520 of 1 April 2020) subject to “Contingible and Urgent Ordinance under art. 191 of D.L.vo 152/2006. Urgent provisions on waste management and remediation following the epidemiological emergency from Covid- 19”, as envisaged by the MATT Circular of 27 March. Extraordinary, temporary and special forms of waste management are adopted in this region, including in derogation from the existing provisions, which include, in particular, the collection of urban waste, the road-sweeping service, the Reuse Centres, the activities of incineration plants and waste treatment plants.

In paragraph 17 of the decree, it states: “In accordance with the fire prevention provisions, persons who manage waste in temporary storage are granted the following automatic exemptions under Article 183 , paragraph 1, letter bb) of d.lgs. 152/2006 and in particular:

  • Waste managed in temporary storage can be initiated to recovery or disposal operations on a six-monthly basis, rather than quarterly, regardless of the quantities in storage;
  • the quantities of waste in temporary storage, reaching 60 cubic meters of which a maximum of 20 cubic meters of hazardous waste, instead of 30 cubic meters of which 10 cubic metres of hazardous waste is at most must be sent to the rescue and disposal operation.”

The second commodity market

In this sector, Italy remains in second place behind France. In 2017, calculating the movement within the EU and outside the EU, in Italy the import/export balance of recycled material recorded an import ratio of more than double the cost of exports, signaling not only an unmet potential to re-enter these materials into internal production processes, but also a total handling of more than 99 million tonnes of goods. This data provides two signals, one positive and the other negative:

  • The first tells us that the Italian production system is capable of enhancing recycled material and that therefore there is a demand for it.
  • The second is that we are not able to fully meet this demand through greater exploitation of waste on our territory.

Considering, in fact, that between urban and special waste today in Italy end up in landfill about 18 Mt, we can reasonably argue that our economy is ready to support a further decrease in this form of disposal. But this is only possible by enhancing the infrastructure of the waste-valuing treatment sector.

Innovation and investment

In the overall assessment of investment and employment performance, Italy is well behind its competitors: the value is about 2.5 times lower than that of Germany and 2 times lower than that of France, denouncing a low level of public appropriations and private investment in this area, as well as of workers employed in eco-innovative research and development. The limit is partially mitigated by a satisfactory level of the eco-innovation output index, i.e. the results obtained thanks to investments.

The circular economy, employment and new professionals

With regard to employment in some sectors of the circular economy (repair, reuse and recycling), Italy ranks second (behind Poland) with employment of 2.06% compared to total employment.

Italy seems to be making the best use of the scarce resources allocated to technological advancement, thus allowing it to catch up which would otherwise be heavy. This ability, therefore, expresses a creative force capable of translating good intuitions into solid realities. It is therefore reasonable to think that the activation of a programme of policies to support the development of eco-innovation on the circular economy would produce more satisfactory results.

Overall, the process of transition to a circular economy lacks an overall vision. In order to be effective and homogeneous on the national territory, it will have to be accompanied by the adoption of governance, perhaps also through the creation of an Agency for the circular economy that can guarantee effective methodological development, as well as support for decision-makers in the implementation and implementation of a Strategic Agenda that provides for the hiring of technical, regulatory, economic and training/information tools.

The circular economy can therefore create 500,000 jobs in Italy in 10 years, according to the III report prepared by Federmanager together with the Aiee. To do this, however, there is a need to fill in some gaps:

  • Legislation that is still layered and uneven,
  • skills shortages,
  • excessive bureaucracy,
  • difficulties accessing credit.

On the one hand, because “Cash from trash”, that is, making waste a resource using circular economy tools, can actually reduce costs, and can do so in a significant way.

On the other hand, because the so-called “new waste” will increase, for example those arising from the development of renewable sources, according to the principles of the green economy. Waste often destined for landfills, coming from turbines, photovoltaic modules, heat pumps and batteries, for example, and for these too innovative and efficient reuse or disposal systems will have to be developed.

But this report is not the only one, it is only the most recent, even according to Enea’s estimates in this area the additional jobs that could be created by sectors impacted by an ambitious circular economy (re-poisoning, repair, recycling, tertiary and bioeconomy) are remarkable. Their model estimates that in the transformation scenario the jobs expected in 2030 would increase by 540 thousand units. Continuing, however, with the current policies would limit the increase in the employment rate to only 35,000 jobs. Brussels also estimates that the circular economy will create 580,000 jobs by 2030; and the full implementation of EU waste management measures could add 170,000 jobs by 2035. All of these forecasts are currently reviewable, by number and by time period, due to COVID-19, but not by growth trend. The GreenItaly 2019 Report, produced by the Symbola Foundation, tells how this impact is benefiting and can also benefit the italian economy. In fact, employment in the circular economy is also growing in Italy, which today has about 3 million people employed in green jobs, 100 thousand more than last year. A lot of space in the recycling sector, but also numerous highly specialized professions, from finance to industrial management. According to these analyses by Fondazione Symbola and Unioncamere, in 2018 the number of green jobs in Italy exceeded the threshold of 3 million: 3,100,000 units, 13.4% of the total employment (in 2017 it was 13.0%). Green employment in 2018 grew by more than 100,000 compared to 2017, an increase of 3.4% compared to 0.5% of other professionals. So the trend is growing and the potential is considerable.

How to get to these trends at the country system level? Effective waste management, considered resources in a circular perspective, is a key point for the development of new jobs and increased competitiveness for every source analysed. To seize these opportunities, however, there is much to be done, however, the institutions should move towards interventions consistent with the principles of environmental action on waste, using clear, lean and efficient regulation, which will lead operators to invest in existing waste management technologies and in R&D in order to find new technological solutions specifically engaged in the green business. Another weakness is the lack of specialist skills, the know-how within companies.

With this in mind, a decisive driver of development will have to be caught in the European field. According to the Ellen Mc Arthur Foundation,  Taken from the EU Commission’s study, the transition to a circular economy in all sectors will enable the EU to save up to USD 640 billion a year on the cost of supplying materials for the durable goods manufacturing system (around 20% of the current cost), which will also benefit a country that has historically lacked second raw materials (obtained by reusing raw material waste) such as Italy. Many new jobs from the circular economy will also replace the lost jobs of the linear economy. However, it is always advisable to see the balance of employment as clear because if so many new jobs are created by the circular economy, there will also be those who have lost a job linked to the linear economy. ‘If more recycling is recycled, for example, there will be fewer jobs in the raw materials sectors, so many people will have to find a new job and will have to move from the primary sector to more circular models.’

In any case, many new jobs will be created in the coming years or will require existing professions to transform.

The “Circular Economy Manager” is in fact a new managerial figure born to manage the circular transition processes within large companies. In addition to this new profession, various new types of employment have emerged.

Several times the role of the “Circular Products and Packaging Designer” has been mentioned, which must be used to redesign goods and services used every day to facilitate recycling. Another figure, this time more administrative, is the “Circular Investment Specialist”. These new financial experts will need to be able to activate the right financial resources to accelerate the Circular transition.

Experts in retail, retail and large organized distribution (GDO) report the need to create “post-purchase customer service” employees. With the boom in products sold as a service, the correct training and information of the buyer and the support so that he can use the product (which in fact remains the property of the company) in the most appropriate way are increasingly important.