The international rating agency Fitch has downgraded Italy's long-term rating to 'BBB+' from 'A-'. The outlook on the long-term issuer default rating (IDR) is negative.
According to Fitch’s press release, the inconclusive results of the Italian parliamentary elections held on February 24-25 make it unlikely that a stable new government can be formed in the next few weeks. The increased political uncertainty and the non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy. Moerover, the Q4 2012 data confirms that the ongoing recession in Italy is one of the deepest in Europe: Fitch expects an Italian GDP contraction of 1.8 percent in 2013, due largely to the carry-over from the 2.4 percent contraction in 2012.
The current outlook is negative. Consequently, Fitch's analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to an upgrade. However, future developments that may, individually or collectively, lead to a revision of the outlook to stable include a sustained economic recovery that supports ongoing fiscal consolidation, the confidence that the public debt to GDP ratio is on a firm downward path and further structural reforms that enhance the competitiveness and growth potential of the Italian economy.
Fitch assumes that Italy will start recovering in the second half of 2013 from its deep recession as the large shocks causing the current recession (fiscal consolidation, tight financing conditions, and weak external demand) gradually fade away.
