ITALY: Moodys Maintains Baa2 Rating, Confirms Negative Outlook

Monday October 9 2017

On 6^th October 2017, Ratings Agency Moody’s  affirmed Italy’s long-term issuer ratings at Baa2, while also maintaining the Nation’s Economic Outlook as Negative.

The key issues that have led to the affirmation of Italy’s ratings at Baa2 has been:

1. The government’s ability to stabilise the banking sector. Due the government’s actions on the weakest banks, the potential for the occurrence of a deeper banking crisis with significant impact on the sovereign’s balance sheet has been reduced.
2. The Italian economy is currently seeing stronger growth, after six years of very weak outturns, with the recovery now being increasingly broad-based. Moody’s believes that the near-term outlook for growth is now stronger than the rating agency had expected earlier. This should help to stabilize public finances and prevent a further increase in the public debt ratio over the coming years.

However, despite these positive developments, issues remain regarding Italy’s creditworthiness. This has led to stagnation in the nation’s ratings and outlook.

The negative outlook reflects the risk that government policy to date and in prospect will not sustainably address this vulnerability. In Moody’s view, Italy has a limited window of opportunity in particular to turn around the debt trend, before interest rates start to rise. The country has a relatively poor track record of implementing structural reforms.

The current rating is subject to potential change. Any potential rating change will rely heavily on  how the Government  tackles its public debt.  A ratings upgrade would require a reorientation of fiscal policy to achieve higher primary surpluses than the current 1.5% of GDP on a sustained basis.

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