The Dbrs Morningstar agency confirms the BBB (high) rating for Italy with a stable trend. For the agency, we read in a note, “the risks for credit ratings are balanced”. And he explains: “Italy’s post-pandemic recovery was stronger than expected and surpassed the other large economies of the euro area. The effects of a more restrictive monetary policy and a weaker external context are weighing on economic activity, but growth is expected to gradually resume as household purchasing power and financial and external conditions improve.” Furthermore, the implementation of Italy’s National Recovery and Resilience Plan “should help mitigate weaker residential investment over the next two years, as generous tax credits for home renovations (Superbonus) are gradually rolled out.” eliminated.”
“The fiscal deficit – it continues – reached 7.4% of GDP in 2023, well above the 5.3% of GDP forecast by the government, and the slippage is largely explained by a greater impact than expected of the Superbonus tax credits”. “On the other hand, Italy’s public debt-to-GDP ratio fell faster than expected and stood at 137.3% of GDP in 2023 thanks to nominal GDP growth. The fiscal impact of these fiscal incentives are expected to be much lower in the future; however, their demands will lead to greater financial needs and will increase Italy’s public debt/GDP ratio in the coming years it should increase to 139.8% by 2026, and then begin a gradual decline in a scenario with current legislation”, we further read. “This is broadly in line with its previous projections, thanks to a better-than-expected starting point. The likely extension of temporary tax relief to 2024 could exert further pressure, if not accompanied by compensatory measures. The plan The government’s medium-term national budget structure, which will be presented by mid-September this year in the context of the upcoming new budget rules, should reconfirm its commitment to reducing Italy’s fiscal deficit”, continues the rating agency.
Morningstar Dbrs’ confirmation of Italy’s Bbb (high) rating is supported by several factors. “First of all – it is then explained – Italy benefits from membership of the European Union, as well as from the support and high credibility of the European Central Bank (ECB)”. Then, “the economy is large and diversified and the important manufacturing sector has demonstrated a high degree of resilience despite the energy price shock”. Third, “Italy’s external position benefits from the rapid recovery of the current account as well as the country’s positive net international investment position (NIIP). Private sector debt is one of the lowest among advanced countries and the Italian banking system is in a stronger position than in the past in terms of capitalization and net impaired assets”. However, it is noted, “credit ratings remain constrained by a very high level of public debt, weak potential GDP growth and a political context that hinders government stability and the ability to face economic challenges”.