The DBRS Morningstar agency has confirmed Italy’s BBB (high) rating with a stable trend. According to the agency, the risks for credit ratings are balanced. Italy’s post-pandemic recovery has been stronger than expected, surpassing other large economies in the euro area. Despite the impacts of restrictive monetary policy and a weaker external context, economic growth is expected to gradually resume as household purchasing power and financial conditions improve. The implementation of Italy’s National Recovery and Resilience Plan is anticipated to help mitigate weaker residential investment over the next two years.
On the fiscal front, Italy’s fiscal deficit reached 7.4% of GDP in 2023, largely due to the impact of tax credits like the Superbonus. The public debt-to-GDP ratio has fallen faster than expected, standing at 137.3% of GDP in 2023. However, the fiscal incentives are expected to lead to greater financial needs, increasing Italy’s public debt/GDP ratio in the coming years before gradually declining. The government’s commitment to reducing Italy’s fiscal deficit will be crucial, especially as temporary tax relief may be extended to 2024.
Morningstar DBRS cites several factors supporting Italy’s BBB (high) rating. Italy’s membership in the European Union, the support of the European Central Bank, a large and diversified economy, and a resilient manufacturing sector contribute to the country’s economic stability. Additionally, Italy’s external position benefits from a rapidly recovering current account and a positive net international investment position. While private sector debt is low compared to other advanced countries, Italy’s credit ratings are limited by high public debt, weak potential GDP growth, and a politically uncertain environment.