DBRS Morningstar has confirmed Italy’s BBB (high) rating with a stable trend. The agency highlighted that Italy’s post-pandemic recovery has been stronger than expected, outperforming other large economies in the euro area. Despite the effects of a more restrictive monetary policy and a weaker external context, economic growth is expected to gradually resume as household purchasing power and financial and external conditions improve.
However, the fiscal deficit in Italy reached 7.4% of GDP in 2023, above the government’s forecast of 5.3% of GDP, largely due to the impact of tax credits such as the Superbonus. The public debt-to-GDP ratio fell faster than expected to 137.3% of GDP in 2023, thanks to nominal GDP growth. However, this was not enough to mitigate weaker residential investment over the next two years, as Italy’s fiscal deficit remains high and potential GDP growth is weak.
Morningstar DBRS confirmed several supporting factors for Italy’s Bbb (high) rating, including membership in the European Union and support from the European Central Bank. The economy benefits from diversification and resilience in the manufacturing sector, as well as a positive net international investment position. Although Italy’s public debt level remains high and potential GDP growth is weak, the country’s banking system is in a stronger position in terms of capitalization and net impaired assets. However, credit ratings are constrained by Italy’s political context, which hinders government stability and the ability to address economic challenges.
