While the European Central Bank’s decision to loosen its monetary policy is a positive for Eurozone economies, Italian markets and related exchange traded fund still face growth concerns, with Standard & Poor’s ratings firm affirming a negative outlook for the country.
S&P warns that there is a one-in-three chance the country’s rating will be lowered next year from its current long-term BBB rating, two levels above speculative grade, reports Lorenzo Totaro for Bloomberg.
“The ratings are constrained by our assessment that economic growth prospects remain weak,” S&P said in the article. “Italy’s modest growth prospects reflect only tentative progress by the past three governments in reforming Italy’s domestic labor and product markets, which we regard as less flexible than those of Italy’s key trading partners.”
Prime Minister Matteo Renzi’s government is tackling a $2.9 trillion deficit, or 133.6% of 2014 GDP. The administration is seeking to cut spending and help fund tax cuts for low-income workers.
Italy’s government estimates that the economy will expand 0.8% this year, despite contracting 0.1% in the first quarter. Meanwhile, the S&P expects GDP growth to average 0.9% between 2014 and 2016.
“The negative outlook reflects our belief that there is at least a one-in-three chance that we could lower the ratings, either this year or in 2015,” S&P said.
Despite S&P’s concerns over Italian debt, benchmark 10-year Italian treasuries touched a record low 2.72% earlier Friday after the European Central Bank revealed an unprecedented round of easing measures Thursday.
The leveraged PowerShares DB 3x Italian Treasury Bond Futures ETN (ITLT) is up 27.6% year-to-date while the unleveraged PowerShares DB Italian Treasury Bond Futures ETN (ITLY) is 9.2% higher. [Italian Bond ETNs Surge as Yields Hit Eurozone-Era Low]
iShares MSCI Italy Capped ETFItaly category.
Max Chen contributed to this article.
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- European Central Bank