Italy remains at two levels above junk at S&P Global Ratings after Giorgia Meloni’s government weathered the first of several possible assessments on its looser deficit prospects.
(Bloomberg) — Italy remains at two levels above junk at S&P Global Ratings after Giorgia Meloni’s government weathered the first of several possible assessments on its looser deficit prospects.
“The stable outlook balances our view of a slower budgetary consolidation than we previously expected, including due to increasing interest payments on large government debt, against the significant economic stimulus EU funds should provide,” S&P said in a statement.
The outcome is good news for the populist coalition, whose recent budget law and wider deficit forecasts had unnerved some investors, pushing the spread between Italian and German 10-year bonds higher.
That common measure of risk has widened sharply since the end of August. It was around 200 basis points on Friday, close to its highest levels this year, ahead of S&P’s verdict.
The rating is two notches above junk, one higher than the assessment of Moody’s Investors Service. That company is scheduled to release its own view on Nov. 17, one in a series by rivals that will intensify scrutiny on the country’s public finances.
“Markets will remain nervous going into Italy rating reviews” and spreads “will likely remain under pressure given risk sentiment,” Emmanouil Karimalis, a strategist at UBS Group AG in London, said earlier on Friday.
While a credit downgrade remains unlikely, it would not be surprising if one of the agencies puts Italy on watch for a potential downgrade, Karimalis added.
Meloni faces a hard road ahead as she confronts weak economic output, which is seen growing just 0.7% this year, according to the Bank of Italy. Higher borrowing costs and slumping global trade are also hurting the country’s businesses.
The government is still trying to keep promises to voters, including tax cuts and aid to lower income families. That’s making it difficult to bring the deficit as a percentage of gross domestic product below the European Union’s limit of 3% until 2026 — a year later than originally planned.
Meloni’s government has promised growth-boosting investments, but it’s also struggling to spend EU Recovery funds that could help improve infrastructure.
–With assistance from Alice Gledhill, Naomi Tajitsu and Hari Govind.
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