Scope has completed a monitoring review on the Republic of Italy
Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereign, sub-sovereign and supranational issuers. Monitoring reviews are unrelated to the calendar that outlines sovereign and public sector rating actions.
Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.
Scope completed the monitoring review for the Republic of Italy (BBB+/Negative; S-2/Stable) on 29 October 2020. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.
Key rating factors
Italy’s BBB+ rating is underpinned by multiple credit strengths including EU and euro area memberships and access to the programmes and facilities of European institutions including to ECB asset purchases and liquidity facilities that have supported financing rates at near record low levels and eased liquidity risks for the public and private sectors. In addition, Italy is set to receive unprecedented support from the EU recovery fund over 2021-26. The BBB+ rating also recognises Italy’s systemic relevance for the euro area and the associated high likelihood of additional enhanced contingent support from European institutions under more severe market scenarios. In addition, a pre-crisis record of primary budgetary surpluses, a strong external sector, moderate levels of non-financial private sector debt and enhanced financial system cushions are credit strengths.
The Negative Outlook reflects the sharp deterioration in government finances as a result of 2020’s severe downturn as well as the government’s fiscal countermeasures. Scope expects, nonetheless, public debt to increase from 135% of GDP in 2019 to about 160% of GDP in 2020. In addition, over the medium run, Scope considers the likelihood of additional adverse shocks that could impact the debt trajectory abruptly to be high. Gross financing needs are expected to remain structurally more elevated post-crisis due to debt accumulated. In addition, the Negative Outlook reflects the risk that a prolonged crisis and loss of investment could further weaken Italy’s fragile growth potential.
The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director
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