[ad_1]
Rating agency Moody's downgraded Italy's rating on Friday (October 19th). She is worried about the budget choices of the populist coalition in power, which is already engaged in a standoff with Brussels on this issue.
The government, formed by the League (far right) and the 5-star movement (M5S, antisystem), predicts a deficit of 2.4% of GDP in 2019, against 0.8% for the previous government, then 2.1 % in 2020 (as opposed to 0) and 1.8% in 2021. But Italy is already bending under a debt of 2,300 billion euros, which represents some 131% of its GDP, the second highest ratio in the region. euro.
The rating changes from "Baa2" to "Baa3"
To make matters worse, the growth forecasts of the government are considered much too optimistic (1.5% in 2019 against 1% expected by most observers, including the IMF), which could further aggravate the deficit and therefore the debt. In this context, Moody's decided to lower Italy's rating by one notch, from "Baa2" to "Baa3".
This means that the country is downgraded to the last level of the investment category, just before the speculative category (junk bonds). Sources at the Chigi Palace, quoted by the Italian agencies, said that "all [était] as expected ".
stable outlook
Moody's has matched its rating with a stable outlook, meaning it should not degrade this new rating in the next six months. A decision that is sure to be interpreted with some relief by the government and should avoid a surge of markets.
"Italy's debt ratio is likely to stabilize around the current 130% of GDP in the coming years, rather than start to decline as Moody's previously thought", says the agency in a communicated. She notes that public debt is all the more problematic as the prospects for economic growth are weaker.
"The government's plans for fiscal and economic measures are not a coherent agenda of reforms that can solve the problems of disappointing growth," she says. Moody's publication had not been announced, as the agency had only indicated it would vote before Oct. 31.
Drop expected also at Standard & Poor's
But, said Erik Nielsen, chief economist at the Italian bank UniCredit, "the agencies hate to be seen as following the others". Moody's has decided to polish its rival Standard & Poor's, which announced its publication for October 26.
Interviewed by the Agence France-Presse on Thursday, Matthieu Grouès, head of strategy at Lazard Frères Gestion, said he expected the Italian rating to drop one notch by the two agencies, a scenario that Nicolas Véron , An economist at the Bruegel Institutes in Brussels and Peterson in the United States, also found "very likely".
The gap between the Italian and German rates is widening
A one-step downgrade could add a bit of trouble, but both badysts rule out a big shakeout in the market. "It is already anticipated, so it will not, in my opinion, a very big event," said Nicolas Veron.
"If the decline is a notch, the markets will not move because they have fully anticipated," also said Matthieu Grouès, who felt that a decline along with a negative outlook could tend "a little " the situation.
The spread, the closely guarded gap between the German and Italian ten-year rates, has already doubled from 150 to 313 points on the secondary market since mid-May, when talks between the League and the M5S begin to form a coalition.
"Unprecedented" skid
The Milan Stock Exchange has lost 21.4%. Banks, which hold nearly 400 billion euros of Italian debt, were the first victims, the sector losing nearly 35%. With the deterioration of the sovereign rating, a number of Italian banks will see their rating lowered in the process.
Read also Should one be afraid of an "Italexit"?
At the same time, the expansionary fiscal policy in Rome has been strongly criticized by the European Commission, which has reported an "unprecedented" fiscal slippage and pointed to the risk of "serious non-compliance" with European rules. This could lead him to reject this budget, which would be a first in the history of the EU. Brussels has asked for "clarifications" in Rome before Monday noon. A council of ministers is convened Saturday.
Source link
