Last Friday, S&P kept Italy’s sovereign debt rating unchanged at BBB, two notches above junk. However, outlook was lowered to negative from stable. Nonetheless, the result of the view was already better than Moody’s, which downgraded Italy to a notch above junk with stable outlook.
S&P said in the statement that “the Italian government’s economic and fiscal policy settings are weighing on the country’s economic growth prospects, a critical driver of government debt-to-GDP trajectory.” Also, “the government’s planned economic and fiscal policy settings have eroded investor confidence, as reflected by a rising yield on government debt.”
S&P projected Italy 2019 budget deficit at 2.7% of GDP, higher than the government’s own forecast and pledge of 2.4%. The rating agency noted that the government’s forecasts for economic growth of 1.5% in 2019 and 1.6% in 2020 were “overly optimistic”. And it projected 1.1% growth for both year, even downgraded from 1.4%, as “the demand stimulus from the government’s budgetary measures will likely be short-lived.”
Though, S&P also hailed that Italy “continues to be supported by its wealthy and diversified economy and its strong external position, with the economy close to becoming a net creditor in the context of its net international investment position.”
