Italy Debt Rating Raised at Fitch on Robust Economic Outlook
(Bloomberg) -- Italy’s credit rating received its first upgrade in four years on Friday, in a sign of confidence in Prime Minister Mario Draghi’s policies that helped the nation’s economy grow faster than the European average.
Fitch Ratings raised Italy one notch to “BBB” with a stable outlook, citing high Covid-19 vaccination rates and an increase in public and private spending that’s set to boost economic expansion.
“So far this year, the Italian economy has proved fairly resilient to the global supply side disruptions and we expect this to continue,” Fitch said in a statement late Friday.
The upgrade comes after S&P Global Ratings in October raised Italy’s outlook from stable to positive, confirming its BBB rating -- it had been the last major rating agency to raise Italy’s assessment in 2017. Friday’s upgrade reflects confidence in the unity government led by Draghi and its ability to spend over 200 billion euros ($226 billion) of cash from the European Union recovery fund to create growth.
Economic output is expected to grow 6.3% this year, according to Italy’s national statistics institute, with a 4.7% expansion in 2022. That’s after the country suffered a crushing decline of almost 9% in GDP last year due to a series of harsh pandemic lockdowns on people and businesses.
The recovery is partly due to “the dynamism of our economic and productive system and to the efforts made by the government to counter the health and socio-economic effects of the pandemic,” the finance ministry said in a statement after Fitch’s announcement. The decision confirms “the solidity of the economic policy pursued by the government and the need to continue vigorously on the path of reforms and investments.”
European Central Bank bond purchases are also helping Italy to keep borrowing costs low. The Draghi government has wasted no time in taking advantage of favorable conditions and has begun spending the first instalments of EU money on key areas including infrastructure, digitalization, green energy, education and health care.
Debt remains a problem, and the government has forecast it at a whopping 153.5% of economic output this year after spending large amounts to protect the economy from the worst of the pandemic fallout. Draghi has said Italy will work on cutting debt in the next few years, with priority being given to investments for growth.
Delays in the execution of reforms and investment agreed with the EU could reverse the improvement in Italy’s credit outlook, Fitch said. The agency also highlighted potential risks from the upcoming presidential elections, that could see Draghi give up the premiership to take on the post of president.
“The implementation of reform measures could slow in 2022 and will be more uncertain beyond the parliamentary elections” scheduled for 2023, Fitch said.
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