Outlook remains gloomy for Italy after downgrade

BODY BLOWS::As well as a cut to its sovereign rating, assessments of projected GDP growth for the eurozone’s third-largest economy were downbeat


Thu, Jul 11, 2013 - Page 15

Ratings agency Standard & Poor’s (S&P) on Tuesday downgraded the sovereign rating of crisis-hit Italy by one notch to “BBB” on worries over the country’s ability to resist effects of a dilapidating recession.

“The rating action reflects our view of a further worsening of Italy’s economic prospects coming on top of a decade of real growth averaging minus 0.04 percent,” the agency said.

The agency also lowered its GDP growth forecast for Italy this year to minus-1.9 percent, compared with a forecast of minus-1.4 percent in March.

Italy’s debt rating was also hit with a negative outlook, meaning the agency does not exclude a further downgrade in the near term.

“The outlook on the long-term rating on Italy is negative, indicating that we believe there is at least a one-in-three chance that the rating could be lowered again in 2013 or 2014,” it said.

Last week, the IMF also cut its growth forecast for Italy, saying the prospects for the eurozone’s third-largest economy remained weak and unemployment was “unacceptably high.”

The IMF said it expected the Italian economy to contract by 1.8 percent this year, from an earlier forecast for a 1.5 percent shrinkage.

Meanwhile, Fitch Ratings Ltd on Tuesday upgraded Latvia’s credit rating by a notch to “BBB+,” just hours after the Baltic nation was green-lighted to become the eurozone’s 18th member.

“The upgrade follows the announcement of ECOFIN’s [Economic and Financial Affairs Council] decision today to invite Latvia to join the eurozone on 1 January 2014,” Fitch said in a statement, adding that the country’s outlook was stable.

The decision by the ECOFIN council — made up of finance ministers from the EU’s 28 member states — was widely expected. Fitch said in May that approval would likely trigger an upgrade.

“Euro adoption will enhance economic policy coherence and credibility compared with the current exchange rate peg to the euro,” the agency said.

Last month, S&P upgraded Latvia by a notch to “BBB+” after the EU executive voted to approve the 2004 EU entrant’s eurozone bid.

“The rating agencies have reacted with lightning speed to the positive news about Latvia,” Latvian Prime Minister Valdis Dombrovskis tweeted on Tuesday.

Latvia was hit hardest among EU members during the global economic crisis, with output contracting by nearly a quarter in 2008-2009.

However, its economy has since bounced back with a vengeance: Latvia posted the EU’s best growth figures in both 2011 and last year, with its GDO expanding by more than 5 percent each year.