(Reuters) – Rating agency Fitch cut Italy’s credit rating to “BBB-minus” on Tuesday, just one notch above junk, saying the downgrade reflects the impact of the coronavirus pandemic on the euro zone’s third largest economy.
Fitch had not been due to review Italy’s rating until July and the shock move is another blow to a country that has the world’s second highest death toll from the virus and a chronically sluggish economy now heading into steep recession.
Fitch changed Italy’s outlook to stable from negative, saying that it sees the European Central Bank’s net asset purchases helping Italy’s fiscal response to the COVID-19 pandemic. (https://bit.ly/2VJl6a3)
On Feb. 7, two weeks before Italy’s first COVID-19 cases emerged, Fitch had affirmed its rating and outlook.
The agency forecast that the Italian economy will contract by 8% this year, which is in line with the government’s own projection made last week, and said Italy’s public debt will climb to 156% of gross domestic product from 134.8% last year. That is broadly in line with the 155.7% forecast of the government of the anti-establishment 5-Star Movement and the centre-left Democratic Party.
“According to our baseline debt dynamics scenario, the debt to GDP ratio will only stabilise at this very high level over the medium term, underlining debt sustainability risks,” the agency said.
It said the country’s banking sector has also deteriorated after the COVID-19 shock, relative to Fitch’s previous expectations of a stabilisation in performance and further asset quality improvement in 2020.
Italian Economy Minister Roberto Gualtieri said Fitch had failed to take account of important decisions taken by the European Union and the European Central Bank to support the economies of the euro zone and its members.
“The fundamentals of Italy’s economy and public finances are solid,” Gualtieri said in a statement.
On Friday fellow ratings agency Standard & Poor’s confirmed its rating and outlook on Italy.
(Reporting by Devbrat Saha; Editing by Shounak Dasgupta and Leslie Adler)
