Italy debt outlook revised to stable


Covid impact: A pedestrian passes a closed bar in front of the Colosseum. Rome says, in its budget outlook, that in a worst-case scenario GDP may fall 10.5% this year and expand only 1.8% in 2021. — Bloomberg

ROME: S&P Global Ratings left Italy’s credit rating unchanged and raised the outlook to stable, making a downgrade toward junk level less likely and giving the country a respite as its government struggles to stem the impact of the second wave of the coronavirus.

S&P kept Italy’s rating at BBB, two notches above junk, and raised the outlook from negative.

Pro-growth measures in Italy’s 2021 budget and the European Central Bank’s expansion and extension of its asset purchase program “provide Italian authorities an opportunity to restart economic growth and to reverse the deterioration of its budgetary performance, ” the ratings company said in a statement.

A rating cut would have paved the way for Italy’s slide into non-investment grade. That would have triggered a mass investor outflow, given that key bond indexes require investment-level status.

Since a dramatic sell-off in March, Italian debt has been supported by European Central Bank bond purchases and the prospect of an unprecedented pandemic rescue package by the European Union. Still, with a debt-to-GDP ratio of close to 160%, Italy is one of the region’s most indebted countries and remains vulnerable to any setbacks to its growth outlook.

The government last week approved a “strongly expansionary” budget which will focus on the health sector, measures to support families and the extension of a moratorium on loan and mortgage payments. The draft budget sets aside €4bil (US$4.7bil) to support the sectors hit hardest by the virus.

Rome said in its budget outlook that in a worst-case scenario gross domestic product could fall 10.5% this year and expand only 1.8% in 2021.

The administration’s current forecast is for a 9% contraction this year and 6% growth in 2021. — Bloomberg

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