Italy Gets Respite From Fitch, Retains Investment-Grade Rating

Fitch Ratings affirmed Italy’s debt rating Friday, giving the country a respite as the government struggles to stem the impact of the coronavirus on the economy.

The ratings company kept the nation unchanged at BBB-, the lowest investment grade, and maintained its stable outlook.

Fitch unexpectedly downgraded Italy from BBB in April, citing “the significant impact of the global Covid-19 pandemic on Italy’s economy and the sovereign’s fiscal position.” It assumed that the coronavirus could be contained in the second half of this year, leading to a relatively strong economic recovery in 2021.

In a statement Friday, the ratings company revised down its previous forecast of an 8% contraction of gross domestic product in 2020, saying its latest prediction is a 9.5% contraction, followed by a recovery of 4.4% growth in 2021.

“Very high government debt and structurally weak economic growth will continue to weigh on the rating,” Fitch said.

Italy has been among the worst-hit by the pandemic, with more than 242,000 coronavirus cases and 34,000 Covid-linked deaths reported since the end of February. The pandemic and the two-month long business shutdown it triggered placed a renewed focus on Italy’s debt pile, which is set to rise well above 150% of GDP by the end of the year.

In March, the nation’s bond yields soared, spurring fears of a fresh sovereign debt crisis in the region, before the ECB stepped in with its pandemic asset-buying program.

Since then, Italy has spent 75 billion euros ($85 billion) in stimulus packages to boost the economy, and a further 20 billion euros will likely be needed. Earlier this week, the European Commission predicted an 11.2% economic slump for the country in 2020, the worst in the euro area.

©2020 Bloomberg L.P.

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