Giorgia Meloni

Italy passes the test of another rating agency. Is the "garbage" level really far away?

Italy has taken revenge from the rating agencies, after the last one – Scope Ratings – also ruled without any downgrading of our country's debt.
After having averted the classification as junk by Moody's, in what was the most feared rating, on Friday 1 December the nation also passed the Scope test, which kept Italy three steps above "junk".
The company has remained true to its BBB+ rating and that grade is not in imminent danger of being lowered according to the official statement.
Our country, however, remains under special observation, especially after announcing a budget with a higher-than-expected deficit and because its debt remains high.
So far the main rating agencies, closely followed by investors and important for building confidence in the country's system, have averted the danger of a dramatic slide into the junk level.
Which, however, is not as far away as a summary graph shows.
Italy does not have junk debt.
But how much is the risk? According to the Scope agency, Italy benefits from “supportive European monetary and fiscal policy frameworks”, the size of its economy and “a favorable public debt structure with an average financing cost of around 3.1% over the period 2022-2026 and an average debt maturity of approximately seven years, which mitigates the impact of rising financing costs.” Furthermore, the country's recent political stability with a large parliamentary majority supports the credit rating, analyst Alvise Lennkh-Yunus said.
The company's comments offer a rosier view than those of larger rivals S&P Ratings and Fitch Ratings, which rate Italy two notches above junk and each have confirmed those grades in recent weeks.
In a summary graph, Bloomberg showed the dynamics of the Italian position according to the various agencies' assessments: Over the last year the rating has remained stable for all companies, with Moody's blue line threateningly just one step away from junk.
This agency, the most rigorous, proposed a downgrading in 2018 and has not yet carried out any upgrades since then.
Although Italy considers these judgments as victories, considering also the fragile European and global context, economic stagnation is a threat to the country.
High interest rates and low growth are an unreassuring combination.
According to the latest data from the national statistics institute, however, the Italian economy grew but only by 0.1% in the third quarter.
The result was an improvement over the previous zero growth forecast.
This year Italy is expected to expand by 0.7% overall.
Be careful, however, of the deficit which is expected to fall below 3% of GDP set by the EU until 2026, a year later than originally expected.
These “weak public finances” were highlighted by Scope.
Some help could come from the Recovery Fund, with the government set to receive the final installment of 16.5 billion euros by the end of the year.
This will bring the total resources distributed to Italy to help revive its economy to around 102 billion euros, or more than half of the total allocation.
The combination of circumstances that favor an Italian relaunch could collapse at any moment.
For this reason, even the EU Commission – while not rejecting the measure – has asked for a greater effort on growth prospects.
After all, the junk level of debt is just one step away.

Author: A.W.M.

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