Ratings agency Moody’s on Tuesday downgraded Italy’s government bond rating from “Aa2” to “A2” with a negative outlook, citing risks for the financing of long-term debt and slow economic growth.
The negative outlook, which suggests a further downgrade in the near future, “reflects ongoing economic and financial risks in Italy and in the euro area,” the agency said in a statement delivering a fresh blow to Italian Prime Minister Silvio Berlusconi’s fragile coalition government.
The Moody’s move came two weeks after fellow ratings agency Standard & Poor’s downgraded Italy’s sovereign debt rating, citing economic, fiscal and political weaknesses.
Most analysts had expected a downgrade of one or two notches, but Moody’s reduced the Italian rating by three levels and warned that an uncertain market environment and risk of further deterioration in investor sentiment could constrain the country’s access to public debt markets.
“If such risks were to materialise and the long-term availability of external sources of liquidity support were to remain uncertain, the country’s rating could transition to substantially lower rating levels,” Moody’s said.
The Berlusconi government sought swiftly to downplay Moody’s decision, saying it was “expected” and the administration was working “with even greater determination to achieve our objectives for the public finances.”
Interest rates on Italy’s enormous debt jumped after the S&P downgrade, with investor confidence also hit by the announcement that the public deficit climbed in the second quarter.
Italy has an enormous debt of more than 1.9 trillion euros (US$2.5 trillion), which comes to about 120 percent of the country’s output. Despite its decision to downgrade Italian debt, Moody’s, unlike many other observers, insisted that “a default by Italy remains remote,” retaining its short-term rating at “Prime-1.”
However it warned “the structural shift in sentiment in the euro area funding market implies increased vulnerability of this country to loss of market access at affordable rates.”
One of the main drivers for the downgrade was a material increase in long-term funding risks for the eurozone countries with high levels of public debt, such as Italy, Moody’s said.
There was also an increased risk to economic growth due to macroeconomic structural weaknesses, such as low productivity and market rigidities, and a weakening global outlook.
Separately, S&P said on Tuesday it affirmed the credit ratings on bailed-out Portugal, with the outlook remaining negative, meaning the level could be lowered in the future.
S&P said Portugal was “strongly committed” to its EU-IMF debt rescue program and the tough fiscal targets set, which it should be able to get close to — by introducing additional austerity measures if need be.
In its assessment, the agency warned that the Portuguese economy “is likely to contract in the near term more severely than we previously expected due to weaker external demand and tighter credit conditions.”
Despite the efforts already made, S&P said “Portugal’s high levels of public and private sector debt, along with its weak external liquidity and high external debt, remain rating constraints.”
S&P said Portugal’s national debt would peak at 106 percent of GDP in 2013, but that Lisbon would continue to find funding support from outside lenders. The circumstances remained fragile, however, and S&P justified its negative outlook for Portugal on “implementation risks related to the EU-IMF program, which could affect our assessment of Portugal’s political commitment or the fiscal risks.”
In July, Moody’s slashed Portugal by four notches.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to