No jolt in sight from Italy. S&P confirms rating and outlook
Standard & Poor’s confirms Italy’s BBB rating and maintains a stable outlook. The rating agency expects Italy’s public debt to GDP ratio to decline in 2023-2026, as economic growth resumes next year, supported by EU investment, external demand and stabilization of terms of trade. This assessment is counterbalanced, according to the report, by the “risk of a reversal in the implementation of fundamental reforms, including those integrated into Italy’s Pnrr, with a consequent delay in EU support”.
S&P expects Italy’s economic growth to slow in 2023 to 0.4% from 3.7% in 2022. “Moderate wage increases in Italy, despite the rise in inflation, they will erode real incomes, while households have absorbed most of the savings accumulated during the pandemic”, specifies the note accompanying the data. In our opinion, observes the rating agency, “the package support for energy, estimated at 2% of GDP for the entire year, will only partially cushion the consequent impact on private consumption, which with around 60% of GDP is a key factor for growth. Furthermore, the recent changes to the Superbonus scheme will limit its adoption and dampen the performance of the sector. We also expect a slowdown in net exports, including tourism receipts, given sluggish eurozone growth, which S&P Global Ratings projects at 0.3% in 2023.”
The 2024 budget law of the government of Giorgia Meloni, evaluates S&P, “it will be important for assessing the government’s commitment to fiscal prudence”. The rating agency underlines that “since the formation of the right-wing coalition government, in September 2022, Prime Minister Giorgia Meloni has pursued a moderate and pragmatic approach towards Europe and fiscal policy, exemplified by the approval of the budget 2023, who has maintained a certain fiscal prudence, in line with his predecessor Mario Draghi”.
Current concerns over former premier Silvio Berlusconi’s health, the report reads, raise “limited political risks”. Indeed, the rating agency maintains that “most of his party, Forza Italia, would probably join the government of the Brothers of Italy if the party were to split”.
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