Italy is unlikely to emerge unscathed from a raft of reviews of its sovereign debt over the next month, analysts say, but the prevailing view is that the ratings agencies will worsen Rome’s outlook while avoiding outright downgrades.
Any negative surprises are likely to trigger a jump in Italian bond spreads which have been on the rise for months, a trend exacerbated since September when Rome hiked its budget deficit targets for 2023-2025.
Italy is the euro zone’s third-largest euro zone economy but has its second largest debt pile as a share of national output, and the country’s growth and public finance prospects have darkened significantly since agencies affirmed Rome’s ratings in the spring.
As a bellwether for the euro zone’s most indebted economies, a downgrade to Italy could impact borrowing rates across the 20-member bloc, and challenge the European Central Bank’s ability to effectively transmit its monetary policy.
S&P Global kicks off the round of autumn reviews on Friday, followed at weekly intervals by DBRS, Fitch, and Moody’s.
“A downward revision of the outlook (to negative) from S&P Global, Fitch or DBRS is likely,” said Alessandro Tentori, CIO for Italy at Axa Investment Managers.