World Economy

S&P Raises Italian Debt Rating

S&P Raises Italian Debt RatingS&P Raises Italian Debt Rating

Standard & Poor’s upgraded Italy’s sovereign debt to “BBB/A-2” with a stable outlook, the credit ratings agency has said in a statement. The agency cited rising private sector investment and employment, government deficit-reduction policies, and bank reforms as drivers of Italy’s economic recovery.

“We are therefore raising our sovereign credit ratings on Italy to ‘BBB/A-2’ from ‘BBB-/A-3’,” the agency said in the statement, Xinhua reported.

S&P analysts “expect real gross domestic product growth this year at about 1.4% and to average 1.3% in 2018-2019”. The government “will achieve this year’s budget deficit target of 2.1% of GDP,” setting Italy’s very high government debt-to GDP-ratio “on a declining path”, according to the statement.

Italy’s improved economic outlook is also down to “the resolution of the crises related to Monte dei Paschi di Siena and two regional Veneto banks, and the quickening disposal of nonperforming loans in the banking system,” S&P said.

According to Bank of Italy data obtained from the finance ministry, gross NPLs held by Italy’s banks were reduced from a total of €200.9 billion (about $233 billion) in December 2016 to €172.8 billion in August 2017.

Italy is slowly pulling out of two economic recessions that were sparked by the global financial crisis of 2008 and by the sovereign debt crisis of 2010.

The prolonged crisis caused households and businesses to default on their loans, which piled up on bank balance sheets.

Beginning in 2015, the Italian government struggled to reform the country’s banking sector to make it more crisis-proof, and to get rid of its NPLs. Gross debt now stands at 126% of GDP.

On the downside, S&P analysts pointed out that Italy’s economy “remains unsynchronized with the rest of the eurozone, as reflected in the depth and length of the 2008-2014 Italian recession”.

They also cited “persistent political uncertainties” ahead of the next general election, likely to be held in spring 2018.

Former Italian prime minister, Matteo Renzi, who stepped down in December after the failure of a constitutional reform referendum, welcomed the news. “After years, at last, S&P raised Italy’s rating,” he said on Twitter. “Work pays off. Things work out over time. Onward now,” AFP said.

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