Italy keeps investment grade rating by Fitch

ROME (BLOOMBERG) – Italy’s credit grade was left unchanged for now by Fitch Ratings, which said the rating is supported by factors including a diversified and high value-added economy, even amid the “significant impact” of the pandemic.

The BBB- rating is just one notch above junk, though Fitch’s stable outlook means there’s no immediate risk of a downgrade. The country’s financial position has been severely weakened by the cost of dealing with the coronavirus pandemic.

The economy will start to recover next year, based on the assumption that lock-down measures will be gradually lifted and a vaccination programme will start in the first quarter, but annual growth figures will be still heavily influenced by base effects, Fitch said in a statement on Friday.

Italy started 2020 already encumbered with a significant debt load, a situation made worse because of the virus and the various shutdowns needed to contain the disease.

Prime Minister Giuseppe Conte’s government has tried to shield the country’s fragile economy with over EUR100 billion (USD121.4 billion) in stimulus spending so far. That’s pushed debt close to 160 per cent of output. The government’s worst-case scenario sees gross domestic product falling 10.5 per cent this year and rising only 1.8 per cent in 2021.

Fitch forecasts a deficit of eight per cent of gross domestic product (GDP) in 2021 and 6.6 per cent of GDP in 2022, the ratings company said on Friday.

Despite the dire fiscal position, Italy’s sovereign borrowing costs have fallen this year. Its 10-year yields are near a record low thanks largely to the European Central Bank’s huge bond-buying effort. That stimulus programme may get expanded again next week, providing more space for governments with stretched finances.