S&P Affirms Italy Rating, Giving More Time to Implement Reforms

(Bloomberg) -- S&P Global Ratings affirmed Italy’s credit rating Friday, giving more time to Rome’s populist government to implement convincing measures to address the country’s economic woes.

The agency affirmed Italy’s sovereign ratings at BBB, at the second-lowest investment grade. The outlook on the rating is negative, indicating that downgrades are possible.

“While current economic and fiscal settings have put public debt on an upward path, we continue to believe that Italy benefits from credit features that underpin the BBB rating," S&P said in a statement. “We expect the Italian economy to stagnate this year, with GDP increasing around 1 percent in nominal terms.”

The coalition government of the Five Star Movement and League parties earlier this month confirmed a gloomy outlook for the economy, cutting its target for growth this year to just 0.2 percent, and raised its fiscal deficit target.

The rating decision was announced just days before a crucial gross domestic product reading on April 30, which could confirm the country’s recession phase. Analysts surveyed by Bloomberg expect GDP to have risen 0.1 percent during the first quarter of the year, from the previous one.

S&P forecast a 2019 budget deficit of 2.6 percent of gross domestic product versus the government’s target of 2.4 percent. Over the medium term, Italy’s average real GDP growth is expected to be about 0.6%, with deficits narrowing slightly to 2.4% of GDP by 2022, according to the statement.

Business lobby Confindustria said Friday that it expects the country’s economic situation to remain fragile and uncertain during the second trimester of the year.

Rabobank said earlier Friday a downgrade could lead to a “material widening” of Italy’s yield spread to Germany, not least because it will minimize the distance to a junk rating.

Italy is rated Baa3 by Moody’s, with a stable outlook, and BBB with negative outlook by Fitch Ratings. Italy’s public debt rose in 2018 to a record 2.3 trillion euros. The debt as a ratio of GDP resumed rising, reaching 132.2 percent. It had been at 131.4 percent both in 2016 and 2017.

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