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 that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic 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 rating’s 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 announces the result of each monitoring review on its website and/or on its subscription platform ScopeOne.

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 20 May 2025.

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 ratings history can be found on scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

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 2.2trn) 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; and 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.

Rating challenges include: i) weak public finances, given high government debt of around 135% of GDP in 2024 and elevated annual gross funding needs of around 23% 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.

Italy's economy expanded by 0.7% in real terms in 2024, in line with 2023, driven by a recovery in domestic private consumption and investments, benefitting from lower inflation, the gradual rise in real wages, stable employment, and easing financing conditions. Public demand and investments also supported growth, bolstered by the ongoing implementation of the National Recovery Plan. Scope expects these factors to continue to support economic activity in the coming years.

Nevertheless, the heightened global trade uncertainty, in particular due to higher tariffs applied by the US on imports globally, poses downside risks for Italy’s growth outlook. The US is Italy’s second-largest export market, accounting for 10.4% of total exports or roughly 3% of GDP. Weaker growth in other key trading partners, such as Germany, further compounds these risks and could have negative short-term impacts on the Italian economy. Scope expects real GDP growth to remain stable at 0.6% in 2025, before increasing to 0.8% in 2026, and remain around this level on average over 2027-30. This trajectory assumes the absence of an additional shock, gradually declining interest rates and an effective implementation of the NRRP supporting growth-enhancing reforms.

The sharp reduction in tax credits linked to the ‘Superbonus’ building renovation scheme led to lower primary expenditure, resulting in Italy’s first primary fiscal surplus since 2019, at 0.4% of GDP in 2024. An increase in tax revenues also supported the improvement in the primary balance. However, the overall fiscal balance remains in deficit, primarily due to rising net interest payments, which increased to 3.7% of GDP in 2024 and are projected by Scope to reach 4.4% by 2030. Scope forecasts a continued primary surplus of 0.5% of GDP in 2025, alongside a modest reduction in the headline budget deficit to around 3.3% of GDP, down from 3.4% in 2024. The headline deficit is expected to fall below the 3% of GDP Maastricht threshold by 2027, which, if realised, would allow Italy to exit the Excessive Deficit Procedure initiated in July 2024. This fiscal path is supported by a conservative approach outlined in the Medium-Term Fiscal Structural Plan, which aligns with the revised EU fiscal rules. Nonetheless, despite gradual improvements in the primary balance, the high interest burden – expected by Scope to exceed 4% of GDP over the medium term – will keep the headline deficit close to 3% through 2027, before it gradually declines to around 2.5% of GDP from 2029 onward.

Scope projects Italy’s debt-to-GDP ratio to rise from 135.3% in 2024 to a peak of 138.7% by 2027. While primary surpluses will contribute positively to debt dynamics, their impact will be outweighed by elevated interest costs exceeding nominal economic growth, as well as the ongoing fiscal impact of the Superbonus scheme. Over the period 2028–2030, the general government debt ratio is expected to remain broadly stable, averaging around 137%.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

Upside scenarios for the long-term ratings and Outlooks are (individually or collectively):

1. A firm downward trajectory in the debt-to-GDP ratio; and/or
    
2. Improved medium-term economic growth resulting from an effective implementation of public investments and structural reforms on which EU fund disbursements are conditioned.

Downside scenarios for the long-term ratings and Outlooks are (individually or collectively):

1. Support from European institutions weakened, increasing refinancing risk on Italy’s high public debt stock;
    
2. The fiscal outlook deteriorated, resulting in a significantly slower fiscal consolidation, or rising debt-to-GDP ratio; and/or
    
3. 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, 27 January 2025) is available on 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, Executive Director

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