Sun, Feb 16, 2014 - Page 13 News List

Moody’s raises Italy’s outlook to stable

Bloomberg

Pedestrians pass clothes stores advertising sales in their window displays in Siena, Italy, on Jan. 8.

Photo: Bloomberg

Italy’s credit rating outlook was raised to stable from negative by Moody’s Investors Service, which cited the government’s financial strength and reduction of risks from contingent liabilities.

Moody’s also affirmed Italy’s “Baa2” and “Prime-2” debt ratings, saying in a statement it expects a leveling-off of the nation’s debt-to-GDP ratio this year. The risk from liabilities are reduced by the potential recapitalization needs of Italian banks, loans by the European Financial Stability Facility and the European Stability Mechanism, Moody’s said.

Italy’s economy expanded in the three months through December last year, marking the first quarterly gain in more than two years as the country began to recover from its longest recession on record. GDP in the fourth quarter increased 0.1 percent from the previous quarter, when it was unchanged, the national statistics institute Istat said in a preliminary report in Rome on Friday.

“We see a significant resilience in the government’s financial strength” and more stability across Europe is providing a “tailwind,” Frankfurt-based Moody’s associate managing director Dietmar Hornung said in a telephone interview. “At the same time, we highlight that the growth outlook is quite subdued.”

Italian bonds have rallied during the past 18 months as the eurozone’s debt crisis eased.

In July 2012, Moody’s cut the nation’s credit rating by two steps to “Baa2” from “A3,” or two levels above junk.

Italy’s credit rating was lowered to “BBB,” also two levels above junk, on July 10 by Standard & Poor’s, which cited a weakening of economic prospects. In March, Fitch Ratings downgraded Italy’s long-term debt to “BBB+” from “A-” with a negative outlook.

Italian borrowing costs dropped to a record low at a sale of three-year debt on Thursday as investors shrugged off rising tensions that led to the resignation of Italian Prime Minister Enrico Letta.

Before Friday’s Moody’s announcement, yields on Italy’s 10-year bonds were 3.7 percent, down from 3.71 percent the previous day. The spread over comparable German bunds was 200.8 basis points.

Ratings remain under pressure more than four years after the outbreak of the European debt crisis, which led the EU to offer emergency financing to Greece, Ireland, Portugal, Spain and Cyprus to shore up their bonds and banks.

European Central Bank President Mario Draghi’s pledge to do what it takes to save the euro has helped stabilize debt markets, while deficits and debt in most eurozone countries remain well above the limits set for membership in the single currency.

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