Fitch confirms the BBB rating on 'Italy and raise the expectations of GDP growth 2023. The revision, explains the American agency, is due to the good performance of the first quarter with the slowdown of the natural gas crisis in Europe, the strong rebound in tourism and the strengthening of global demand. But also thanks to a stable government, as well as the banking system. These elements, however, “are offset by weak macroeconomic and fiscal fundamentals, notably very high public debt, a relatively accommodative fiscal stance after the pandemic, limited economic growth potential and, more recently, an environment of higher yields ( of government bonds). Friday 19 May will be the turn of Moody's and the fear is that of a possible downgrade (rating reduction) as hypothesized by the Bloomberg agency.
Italian growth above expectations, but public debt too high
La Italian growth it "exceeded our expectations in the first quarter of 2023" thanks to the easing of the gas crisis, the strong recovery in tourism and the strengthening of global demand. This was stated by Fitch, underlining that in the light of these dynamics it has raised its growth forecasts for Italy in 2023 to 1,2% from the previous 0,5% (March forecast -0,2%). "In 2024 we expect growth of 0,8%, slower than the 1,3% expected in March", added the agency, noting how the Italian recovery is in any case slower than that of the euro area.
THEinflation it increased to 8,8% in April from 8,1% in March. The forecast is that "inflation will fall to an average of 7,2% in 2023 and 3,5% in 2024 (from 8,7% in 2022), supported by the normalization of energy prices and only by limited second-round effects". Finally, Fitch expects a decline in the Italian public debt which in 2024 should amount to 142,3% of GDP compared to 144,4% in 2022. Debt remains above pre-Covid levels, when it reached 2019% in 134,1, and the average of the countries that have a BBB rating.
Italy, stable government
The Italian government enjoys a “stable majority in parliament and strong support among voters. In the light of this and of the fragmented opposition, we believe that it is possible for the government to last the entire mandate”, continues Fitch, underlining that “political stability creates space for the government for a medium-term strategy”. In any case, warns the rating agency, the coalition could face pressure to implement the spending commitments made during the campaign.
Resilient banking sector
Le Italian banks they are much more stable compared to the last crises "as evidenced by a gross NPL rate of just over 3% at the end of December 2022, the lowest in over a decade, more solid capital metrics and diversified revenues", explains the agency adding that the State aid has “effectively mitigated credit risk and borrower defaults have remained low throughout 2022 and the first quarter of 2023”. Persistent inflation, rising rates and geopolitical uncertainty are likely to reduce demand for loans and result in higher default rates, Fitch explains, “but rising borrowing costs will partially support banks ”.
