(Image source: La Presse)
Fitch confirms Italy’s stable outlook, but watch out for the Superbonus: it continues to weigh on public finances
Also Fitch confirms the rating of public accounts of Italy, BBB with stable outlook. A decision in the wake of those adopted in the last two weeks by S&P and Dbrs, now Moody’s judgment is missing, expected on May 31st. As he had already done in a paper in recent days, Fitch draws attention to the impact of the Superbonus on public finances – the data calculates approximately 219 billion euros paid out so far in favor of all building bonuses – assessing that this mass of tax credits could also lead to tensions within the government majority.
Italy’s rating is supported by its large, diversified and high value-added economy, membership in the eurozone and strong institutions compared to the peer group median. These credit characteristics are balanced by weak macroeconomic and fiscal fundamentals, notably very high government debt, large post-pandemic fiscal deficits, limited economic growth potential, all made more challenging recently by a higher yield environment,” Fitch notes According to the rating agency, Italy’s fiscal deficit “yes will reduce to 4.7% of GDP this year (the government forecast is 4.3%) from 7.4% in 2023 due to the gradual elimination of the Superbonus and the changes to its accounting from accrual to cash”. Precisely the spending for the Superbonus , Fitch notes, “has put the public debt burden on an upward trajectory in our baseline projection as it will feed into debt metrics over the next 10 years as credits are drawn down.”
The new EU reporting methods, which will be launched by September, could also impact the performance of public finances. Fitch’s estimate is that “the debt/GDP ratio increases to 142.3% in 2027 from 137.3% in 2023, building on a previously broadly stable path.” The rating agency sees “high uncertainty about the fiscal path beyond 2024. As this is a year of transition for the EU fiscal surveillance framework, Italy presented only a no-policy scenario in its Stability Program in April and is expected to present the policy path in April.” Fitch hypothesizes that the fiscal deficit “will will reduce moderately to 3.9% and 3.2% in 2025 and 2026 respectively.”
According to Fitch the public support for the Meloni government “remains strong, providing a platform for medium-term economic and fiscal planning.” For the rating agency, however, “the reduced fiscal space due to the higher-than-expected Superbonus spending could increase tensions between the coalition parties”. The government recently said that extending some of the one-off fiscal measures introduced in 2024 (amounting to 0.7% of GDP) will be its priority. According to Fitch “it may be difficult to implement without compensation measures, given the constraints of EU fiscal rules”.