Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Italy (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BBB+/Stable; short-term local- and foreign-currency issuer ratings: S-2/Stable) on 25 November 2024.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

For the updated rating report accompanying this review, click here.

Key rating factors

Italy’s BBB+/Stable rating benefits from i) the supportive European monetary and fiscal policy frameworks under the EU and euro area institutional architecture; ii) the Italian economy’s size (GDP of EUR 2.1trn) and diversification, which, together with a high per-capita income of around EUR 37,000, strong external sector, moderate non-financial private sector debt and financial system buffers, supports economic resilience; iii) a favourable public debt structure with an average cost of funding of around 3.0% and an average debt maturity of around seven years; and iv) the country’s recent political stability given a wide parliamentary majority and the next general elections scheduled for 2027.

Rating challenges include: i) weak public finances, given high government debt of around 137% of GDP in 2024 and elevated annual funding needs, including bills, of around 24% of GDP, expected to persist into the medium term; ii) structural challenges, which constrain medium-term growth by limiting productivity and labour force participation; and iii) weak demographics, with an ageing and declining working population that will continue to weigh on government finances and growth.

Scope expects the fading growth dynamics from the phase-out of the house renovation tax credits (Superbonus) to be partially replaced by increased investment spending under the national recovery and resilience programme (NRRP), with economic growth gradually increasing from 0.7% this year, to 0.9% in 2025 and around 1% over 2026-29. This trajectory assumes the absence of an additional shock, interest rates gradually falling, and an effective implementation of the NRRP supporting growth-enhancing reforms.

Following the announcement by the EU to place Italy under an excessive deficit procedure in July 2024, the government published its new fiscal structural plan. This includes higher fiscal revenues and targeted spending cuts, confirmation of the gradual phasing out of the Superbonus tax credit, and measures to combat tax evasion. Scope expects the budget deficit to decline this year to around 4.0% of GDP from 7.2% in 2023 and a return to primary surpluses from next year. The headline deficit should fall below the 3% of GDP Maastricht threshold by 2027, coinciding with the next general election likely to be held in late-2027. Despite the gradual improvements in the primary balance, the elevated interest burden, which Scope expects to exceed 4% of GDP, will keep the headline deficit close to 3% over the medium term. On this basis, Scope expects the debt-to-GDP ratio to increase from 135% in 2023 to peak at 139% by 2028, largely driven by the delayed effects of the Superbonus whose cumulative impact on the public debt will amount to around 6% of GDP between 2024 and 2027. The general government debt ratio is thus set to remain broadly stable at around 135%-140% over the medium term.

The Stable Outlook represents Scope’s view that risks to the ratings are balanced.

The ratings/Outlooks could be upgraded if there is, individually or collectively: i) a firm downward trajectory in the debt-to-GDP ratio; and/or ii) improved medium-term economic growth resulting from an effective implementation of public investments and structural reforms on which EU fund disbursements are conditioned.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) support from European institutions weakened, increasing refinancing risk on Italy’s high public debt stock; ii) the fiscal outlook deteriorated, resulting in a significantly slower fiscal consolidation, or rising debt-to-GDP ratio; and/or iii) the medium-term growth outlook weakened due to delays in public investment and/or reforms under the country’s recovery and resilience programme.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Eiko Sievert, Senior Director

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