S&P leaves Italy rating unchanged amid gloomy business forecasts

Source: Xinhua | 2019-04-28

Standard & Poor's ratings agency on Friday left its rating on Italy's sovereign debt unchanged at BBB, a notch above junk, amid gloomy forecasts by the country's leading business lobby, which represents Italy's industrial power base.
Standard & Poor's pointed out that its outlook remains negative, because the government has not implemented needed reforms amid shaky global markets.
Back in October, Standard & Poor's left Italy a notch above the dreaded junk rating at BBB, in line with Fitch and DBRS and one step above Moody's ratings agency.
The latter in October downgraded Italy's creditworthiness to BAA3 from BAA2, citing "the recently announced material shift in fiscal strategy, with significantly higher budget deficits planned for the coming three years compared to earlier expectations."
Credit ratings are used by sovereign wealth funds, pension funds and other investors to gauge the credit-worthiness of a country -- in this case, Italy -- thus having a big impact on that country's borrowing costs.
In February this year, Fitch cut Italy's 2019 economic growth outlook from 1.1 percent to 0.3 percent, well below the 1 percent growth on which the Italian government's budget is based, following on a cut by Moody's, which saw Italy's economy growing between 0-0.5 percent this year, down from a previous estimate of 1.3 percent.
Moody's announcement on Friday came as Centro Studi Confindustria (CSC), a think tank run by Italy's Confindustria business association, issued a preview of its Spring 2019 national economic forecast, in which it painted a gloomy picture of the year ahead.
CSC said Friday that it sees economic stagnation in 2019, to be followed by "slight improvement" in 2020.
"In 2019, internal demand will be practically at a standstill and a recession will only be avoided thanks to a lackluster expansion of foreign demand," CSC wrote.
The think tank said the government's budget "is not growth-oriented enough" and does not reduce the public debt-to-GDP ratio, which in turn makes Italian sovereign bonds "less desirable for financial markets".
The CSC report, which will be released Saturday, said this year's economy has inherited a downturn in leading indicators in the second half of last year, after the current rightwing-populist government took office in June.
Among these indicators was "a 1 percent rise in sovereign bond yields...reflecting the increase in the risk premium investors demand in order to hold Italian sovereign bonds", as well as "a progressive collapse of business confidence, especially in manufacturing, followed by a deterioration in Italian household confidence," according to CSC.
These problems will continue to negatively affect the economy unless the government changes course, CSC analysts said.