Fitch revises Italy’s outlook to ‘positive’ on stronger fiscal performance
GLOBAL credit ratings agency Fitch on Friday (Oct 18) revised its outlook on Italy to ‘positive’ from ‘stable’, citing recent improvements in the fiscal performance of the eurozone’s third-largest economy and its commitment to EU budget regulations.
The upgrade to the outlook is a boost to Prime Minister Giorgia Meloni’s government and comes shortly after Rome reached an agreement with the European Commission on a seven-year budget adjustment.
“Italy’s fiscal credibility has increased, and the 2025 budget underscores the government’s commitment to EU fiscal rules,” Fitch said.
The agency confirmed Italy’s rating at ‘BBB’.
In June, the Commission placed Italy and six other countries under a disciplinary procedure due to high budget deficits. Italy’s 2023 shortfall came in at 7.2 per cent of gross domestic product, the highest in the 20-nation eurozone.
However, last month the Italian government revised down its targets for the deficit this year and next, to 3.8 per cent and 3.3 per cent of GDP respectively, and said the deficit would fall below the EU’s 3 per cent limit in 2026.
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“The judgments of the ratings agencies are the result of the responsible actions of this government and they underscore Italy’s credibility,” Economy Minister Giancarlo Giorgetti said after Fitch’s announcement.
Earlier on Friday, S&P Global confirmed its rating on Italy at ‘BBB’ and left the outlook at ‘stable’.
Rising debt
Despite the narrowing annual budget deficits, Italy’s debt, proportionally the second highest in the eurozone, is forecast by the government to climb from 134.8 per cent of gross domestic product last year to 137.8 per cent in 2026, before gradually declining.
The Treasury said the projected increase is due to costly home renovation incentives adopted during the Covid-19 pandemic, known as the Superbonus scheme.
The premium investors pay to hold Italian government bonds over top-rated German ones narrowed on Friday to around 116 basis points, the lowest level since end-2021.
Analysts said earlier this week that positive news from any of the ratings agencies due to review Italy could trigger a further narrowing of the yield spread against Germany.
Fitch said its revision to Italy’s outlook was also driven by “signs of stronger potential growth and a more stable political context”.
The Italian economy expanded by 0.7 per cent in 2023, and most analysts expect a similar modest growth rate this year, slightly below the government’s official 1 per cent target.
Meloni, who took office two years ago, retains high approval ratings and opinion polls show her right-wing Brothers of Italy party is comfortably the largest in Italy, with popular support of almost 30 per cent, up from the 26 per cent it won at the 2022 election.
Italy faces further credit rating reviews by Moody’s, DBRS and Scope Ratings over the next few weeks up to No 29. REUTERS
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