The international ratings agency Fitch said Friday it had downgraded Italy's sovereign debt rating by one notch to "BBB+" from "A-" and added that the outlook was negative. Fitch pointed in particular to "the inconclusive results of the Italian parliamentary elections on 24-25 February" which "make it unlikely that a stable new government can be formed in the next few weeks."
Fitch also noted that Italy's ongoing recession "is one of the deepest in Europe," and warned that "the increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy." The agency also forecast that Italy's public debt, one of the eurozone's biggest, would peak this year at close to 130 percent of GDP (gross domestic product), worse than Fitch's previous estimate of 125 percent.
It added that the economy was likely to shrink by 1.8 percent this year, in the wake of a 2.4 percent contraction in 2012, and said that "a weak government could be slower and less able to respond to domestic or external economic shocks." Fitch's "BBB+" rating nonetheless leaves Italian debt in the investment grade category, and on the bright side, it underscored the country's "relatively wealthy, high value-added and diverse economy with moderate levels of private sector indebtedness."
Rome has also made considerable progress with fiscal consolidation in the past two years, the agency noted, estimating that Italy's public debt would fall to around 2.5 percent of GDP this year. That "would be close to the constitutional requirement of a balanced budget," and would put Rome below the eurozone public deficit ceiling of 3.0 percent of GDP.
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