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Oct 23 (Reuters) – Standard and Poor’s on Friday revised Italy’s sovereign outlook to stable from negative, offered some unexpected good news for the eurozone’s third-largest economy, and affirmed its long and short-term credit ratings at “BBB / A-2 “.
The rating agency said bit.ly/3mbPUKMItaly’s The outlook balances the negative consequences of the coronavirus pandemic on public finances against the extraordinary policy response by the European Central Bank.
Despite soaring debt and deep recession, Italy’s borrowing costs are at record lows, thanks to the ECB’s massive bond-buying program aimed at supporting the eurozone economy.
S&P said the ECB’s support, together with the European Union’s Recovery Fund set up to provide Italy with up to 12.5% of gross domestic product in grants and loans conditioned on pro-growth reforms, offered the country valuable breathing room.
“In our view, despite macroeconomic uncertainty, these measures provide the Italian authorities with an opportunity to restart economic growth and to reverse its budget slump,” the agency said.
However, S&P said it anticipates Italy’s GDP will not return to 2019 to 2023 levels due to the impact of COVID-19 on the economy.
Italian Economy Minister Roberto Gualtieri welcomed the agency’s move, saying it was “an impetus to continue on a path that protects our economy and at the same time guarantees strong prospects for relaunching growth.”
The government predicts the economy will shrink 9% this year. The European Commission, International Monetary Fund and most independent bodies are expecting a double-digit contraction.
Italy’s public debt, which is proportionally the second highest in the eurozone after Greece, is targeted to surge from 135% in 2019 to 158% this year, the highest level since World War II.
Italy’s gross domestic product fell 13% in the second quarter from the previous three months. A partial rebound is expected in the third quarter, but recovery risks eased soon due to the resurgence of coronavirus infections that have declined sharply over the summer.
Friday saw 19,143 new cases of the virus in Italy, the highest daily tally since the country’s outbreak was revealed in late February.
Several Italian regions, from Lombardy in the north to Campania in the south, have imposed curfews, and on Friday the governor of Campania called for a new national lockdown. (Edited by Forward Samuel)
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