MILAN, April 7 (Reuters) – Italy will soon be under surveillance to triple the country’s rankings – which are not too far from non-investment rankings – while still reeling from the effects of the coronavirus epidemic.
The first line is S&P Global, whose report card is due on April 24, followed by Moody and DBRS on May 8.
Combating economic shocks caused by viruses, which have paralyzed activity since early March, will require much higher public spending, thereby increasing debt.
The ruling coalition in Italy – the 5-Star Movement and the center-left PD party – last month approved a 25 billion euro ($ 27 billion) stimulus package with a decree called “Cura Italia”.
The government issued a new emergency regulation Monday which would provide more than 400 billion euros ($ 432 billion) in value of liquidity and bank loans to companies affected by the epidemic.
The law, combined with an earlier stimulus package launched in March, will allow banks to offer loans totaling more than 750 billion euros to try to prevent the collapse of the euro zone’s third-largest economy.
Italy entered a recession before the COVID-19 crisis. Data from the ISTAT national statistics bureau shows gross domestic product which contracted 0.3% in the fourth quarter of 2019 from the previous three months.
Economists agreed in forecasting another much sharper decline in the first quarter of this year and for 2020 as a whole.
The Italian rating outlook is seen as key by the financial markets. Given its high debt levels and that this will be the fourth recession since 2008, it is seen as one of the euro zone’s weakest links.
The following are some of the main points for the Italian ranking lane.
* S&P Italy’s global ranking is ‘BBB’, the second lowest investment rating, with a negative outlook. Frank Gill, director of S&P sovereign ratings for EMEA, said last week the agency saw no “urgent need to adjust” credit ratings.
* Both Moody and DBRS will update their ranking on May 8. Moody’s rating is at ‘Baa3’, one step away from the non-investment rating, with a stable outlook. The DBRS value is ‘BBB (high)’, with a stable trend. The Canadian institution considers the rank of speculative or non-investment sovereignty equal or lower than ‘BB’.
* The Confindustria business lobby said last week it saw Italian GDP fall by 6% and the deficit rise to 5% of GDP by 2020 due to a coronavirus outbreak. The debt to GDP ratio could jump to 147.2% from 134.8 in 2019.
* Economy Minister Roberto Gualtieri said last week the estimated GDP of the business lobby was realistic.
* LC Macroadvisor economist Lorenzo Codogno said on Friday he saw an increased risk of a downgrade for Italy and other countries. Fitch cut the debt rating of the British government in late March.
* According to Alessandro Tentori, Cio di Axa, there is no risk of a downgrade for Italy in the short term, at least when a virus outbreak rages.
* In a report published last week, Commerzbank and Kames Capital consider Italy to downgrade to “rubbish”.
* Goldman Sachs said it saw an Italian deficit of 10% and a debt / GDP ratio of 160% in 2020.
* Prometeia think-tank said it expects Italy’s GDP to fall by 6.5% by 2020, with public debt rising to 150% by the end of the year.
* Think-tank Ref said in a report published on March 20 that the Italian economy would contract by 3% in the first quarter of 2020 and shrink further 5% in the second quarter.
* Stretching the horizon until summer, Fitch Rating will update its review on July 10. The agency is currently assessing Italy at ‘BBB’, two levels above ‘rubbish’, with negative views such as the S&P Golbal.
* The spread of closely watched 10-year bond yields between Italy and Germany briefly rose to around 320 basis points on March 18, narrowing only after the European Central Bank stepped in with increased asset purchases to stem the market panic. The gap is currently around under 200 bps (Reporting by Alessia Pè, Sara Rossi; Editing by Gareth Jones)