Italy is the second most indebted country in the euro zone before the Corona crisis. But the pandemic leads to further extensive burdens. The rating agency Fitch now delivers the receipt.
In view of the economic burdens caused by the Corona crisis, the rating agency Fitch has lowered Italy’s credit rating by one level. The credit rating will be reduced from “BBB” to “BBB-“, said Fitch. The grade is only one level above the so-called junk level, which describes speculative forms of investment.
Italy was hit early and particularly hard by the spread of the Corona crisis. The government has taken extensive containment measures and has largely paralyzed economic life. The economically strong north of the country was particularly affected. Italy suffered from continued weak growth even before the crisis.
GDP decline of eight percent expected
Fitch assumes that gross domestic product will shrink by eight percent in 2020. The corona virus is expected to be kept under control in the second half of the year and the economy will recover in 2021. But it could get worse if there was a second wave of virus spread and the economy needed to be shut down again, the release said. Then an even weaker economic development can be expected this year and next.
According to Fitch, the debt level should rise by 20 percentage points to 156 percent of GDP by the end of the year. In the medium term, it should stabilize at a very high level. This poses a risk of stability. Italy already had the second highest debt level in the Eurozone before the Corona crisis.
Stable outlook
According to Fitch, the outlook for the rating is stable. So there is no further downgrade at first. Fitch refers to the monetary policy of the European Central Bank (ECB), which should keep financing costs for Italy low. However, the rating could be jeopardized if the government does not implement credible growth and budget policies.
The Italian Ministry of Economic Affairs said that Minister Roberto Gualtieri had taken note of the rating agency’s decision. However, the country’s weak economic development, which Fitch has cited as the reason for the downgrade, is due to external and temporary circumstances, the statement said in relation to the coronavirus pandemic. Other rating agencies would have decided differently, it said. “The fundamentals of the Italian economy and public finances remain solid.”
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