Fitch downgrades Italian debt rating; 'stable' outlook

 

The ratings agency Fitch on Friday downgraded Italy's long-term debt rating a notch to BBB, one level above the "speculative" grade, citing the country's persistent debt and fiscal problems.

However Fitch said Italy's outlook was stable.

Italy has been unable to reduce its overall debt burden due to weak economic growth and a recurring failure to meet spending targets, leaving it exposed to adverse shocks, the agency said in a statement.

"This is compounded by an increase in political risk, and ongoing weakness in the banking sector which has required planned public intervention in three banks since December," the statement said.

Italian sovereign debt rose 0.5 percentage points to 132.6 percent of GDP last year and will likely rise at the same rate this year, falling only marginally to 129.3 percent by 2020, according to Fitch.

The agency noted that the failure of a constitutional reform referendum in December had left the interim government weakened, reducing its ability to implement reforms.

"Risks of weak or unstable government have increased, as has the possibility of populist and eurosceptic parties influencing policy," the statement said.

"Greater populism may dampen political appetite for reform, increase the pressure for fiscal loosening, and weigh on investor sentiment."

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