Credit rating agency Fitch has downgraded Italy’s credit to BBB-minus, one position above “Junk” – a status issued to warn investors there is a risk of defaulting or unable to pay interest payments. Fitch had not been due to review the credit of the EU’s third-largest economy until July, however rising debt and slow growth during the coronavirus pandemic has triggered fiscal intervention.
Commenting on the decision, BBC Katya Adler said: “This will really hurt in #coronavirus battered Italy, raising borrowing costs further.”
In its projections Fitch warned the Italian economy will contract by eight percent this year.
The agency also forecast Italy’s public debt will climb to 156 percent of Gross Domestic Product (GDP) – a rise from 134.8 percent in 2019.
In a statement Fitch said: “The downgrade reflects the significant impact of the global Covid-19 pandemic on Italy’s economy and the sovereign’s fiscal position.
“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.”
Fitch issues a credit rating on a scale from AAA to D.
The coveted AAA “Highest credit quality” rating denotes the lowest expectation of default risk and is highly unlikely to be adversely affected by foreseeable events.
The lowest D “Default” rating indicates bankruptcy.
Mike Riddell, a bond fund manager at Allianz Global Investors said: “Italy’s debt is probably heading to somewhere upwards of 170 per cent of GDP next year.
“These are the kind of levels where you get junked; it doesn’t matter how much of your bonds the central bank is buying.”
Italy has appealed the decision and Italian Economy Minister Roberto Gualtieri said Fitch had failed to take account of economic measures taken by the European Union and the European Central Bank (ECB).
He said: “The fundamentals of Italy’s economy and public finances are solid.”
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