Fitch Ratings on Friday downgraded the credit ratings for Italy, stating that the continued political stalemate after the inconclusive elections last month may deliver an adverse shock to the already crippled economy.
Fitch lowered Italy’s long-term foreign and local currency Issuer Default Ratings (IDR) to ‘BBB+’ from ‘A-‘. The Outlook on the Long-term IDRs is ‘negative.’
In a statement, the rating agency said “the inconclusive results of the Italian parliamentary elections on 24-25 February make it unlikely that a stable new government can be formed in the next few weeks.”
“The increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy amidst the deep recession,” it added.
Also, the fourth quarter economic indicators confirmed that the ongoing recession in Italy is one of the deepest in Europe, the agency said. Fitch assumes that Italy will start recovering from its deep recession only in the second half of this year.
Fitch estimates the gross general government debt to peak in 2013 at close to 130 percent of GDP from an estimated 125 percent in mid-2012, due to the deeper recession and its adverse impact on headline budget deficit.
Fitch said it believes that a weak government could be slower and less able to respond to domestic or external economic shocks.
by RTT Staff Writer
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