Rome (AFP) - Italy prepared Tuesday to let families skip mortgage and some tax payments to help deal with a coronavirus outbreak that has killed 631 people and forced the government to restrict movement for its 60 million citizens.

Ministers said they would also ask the European Union to allow Rome to raise its deficit spending to 10 billion euros ($11.3 billion) to help businesses hurt by a precipitous drop in tourism over the past month.

The new family and small business support measures are expected to be formally unveiled in a government decree late Wednesday.

The Milan stock exchange fell by another three percent on Tuesday after shedding 11 percent Monday during a global market rout that was sparked by a collapse in the price of oil.

Analysts expressed concern that the new measures could deliver a potentially fatal blow to Italy's wobbling banks and cause trouble for the economy down the line.

Deputy Economy Minister Castelli said family support measures could include "suspension of the payment of (salary) withholdings and contributions" to various Italian tax funds.

Some banks expect Italy's economy, the eurozone's third biggest, to contract by 1.0 percent between April and June.

"We are worried about this and for this reason we pushed the banking system to give as much as possible (on the) suspension of mortgages," she said.

"You will see the details in the next few hours."

Troubled banks

Italy on Tuesday imposed travel restrictions and a ban on public gatherings to help fight the spread of a disease that has infected more than 10,000 people in just over two weeks.

The latest social distancing measures expand those the government placed Sunday on the economically vibrant Lombardy region that bore the early brunt of the COVID-19 disease.

Economists at Citi said the latest round of Italian restrictions is likely to result in "a sharp contraction similar to the 2008-09 recession".

"It remains very difficult at this stage to gauge the extent of the decline, but this will most likely much bigger than our original estimate of 0.5-0.6 percent," they said in a research note.

Citi's original estimate for the Mediterranean country was based only on restrictions for Lombardy and other industrial parts of the north that account for around 40 percent of the nation's total output.

Any measure even partially suspending mortgage payments could deliver a painful blow to big banks that are swamped with large amounts of non-performing loans.

"Since economic activity is likely to drop, banks could see a fall in asset quality and an increase in non-performing loans and provisions," Rabobank warned in a note.

"Many of these factors affect banks across the board, but the lockdowns in Italy coupled with the high branch density are likely to accentuate the headwinds."

Rome aired plans last week to inject 7.5 billion euros ($8.5 billion) into the economy to help businesses -- particularly those in the tourism sector -- to get by in the coming weeks and months.

But Economic Development Minister Stefano Patuanelli said "seven and seven and a half billion are not enough to face down the crisis".

Patuanelli told Italian radio that Rome was working on a proposal to raise spending by around 10 billion euros -- about 0.6 percent of Italy's gross domestic product and a level that would put the country well outside the EU's rules.

Italy needs special permission from Brussels to spend more than allowed under the bloc's strict budgetary rules for its 27 member states.