(Bloomberg) -- Fitch Ratings affirmed Italy’s credit rating Friday, giving the country a respite as it plunges into a new phase of political instability and probably early elections.
The agency kept the country’s rating unchanged at BBB, and maintained its negative outlook, which indicates that a downgrade is still possible. That’s good news for Prime Minister Giuseppe Conte as he prepares to face a no-confidence motion in Parliament by the dominant coalition member Matteo Salvini.
The fresh political crisis comes as Italy struggles to make headway on the country’s economic stagnation amid legislative delays and the constant feuding between Salvini and his coalition partner and rival, Luigi Di Maio of the Five Star Movement.
“This week’s political developments reinforce our assessment at the previous review that the government was unlikely to see out a full term and there is an increasing risk of an early election from the second half of this year,” Fitch said in a statement. “There are downside risks to the fiscal outlook should a future government opt to disengage from EU fiscal rules and be more willing to risk financial market instability.”
Statistics office Istat said on July 31 that the nation failed to record any growth for a fourth time in five quarters in the three months through June. The government is forecasting 0.2% growth during the year.
Fitch continues to expect moderate fiscal loosening in 2020 and kept unchanged its deficit projection at 2.7% of GDP. The rating agency forecasts GDP growth of 0.1% in 2019, down from 0.9% in 2018, with investment growth slowing to 1.3% from 3.4% last year, and some softening of private consumption.
Salvini said earlier this week that he expects next year’s deficit to be not lower than 2%, a level that could cause further tensions with the European Commission.
Fitch announced a review of Italy’s rating last year, and has since then left the country’s rating at BBB, two notches above investment grade. The negative outlook was reiterated in April.
Moody’s currently rates Italy at Baa3, one notch above investment grade with a stable outlook, while S&P Global Ratings in April reaffirmed a negative outlook with a rating two notches above investment grade.
“Downgrade risk remains high over the coming months should Italy’s budget not be broadly consistent with EU fiscal rules, and taking into account that the debt-to-GDP ratio is due to deteriorate even in the best scenario,” Lorenzo Codogno, chief economist at Macro Advisors Limited, wrote in a note before the release.
To contact the reporters on this story: Chiara Albanese in Rome at firstname.lastname@example.org;Hari Govind in San Francisco at email@example.com
To contact the editors responsible for this story: Chad Thomas at firstname.lastname@example.org, Alessandro Speciale, Dan Liefgreen
For more articles like this, please visit us at bloomberg.com
©2019 Bloomberg L.P.