Standard and Poors' downgrades Italian outlook to 'negative'
Published: 8/8/2005
PARIS - The international debt ratings agency Standard and Poors downgraded its outlook on Italy on Monday to "negative" from "stable", citing growing fiscal challenges and declining pressure from eurozone partners for prudent public finance management.
SandP nonetheless maintained its long- and short-term ratings for Italy at "AA minus" and "A-1 plus".
SandP credit analyst Moritz Kraemer said the outlook revision "reflects the increasing downside risks to Italy's public finances in an environment of low growth and weakening peer pressure".
EU leaders voted in March to dilute the stability and growth pact, the fiscal rulebook underpining the euro, to allow member states more leeway with public deficits.
Kraemer said that, ahead of a general election sometime before May 2006, "neither of the two main political groupings has presented a cohesive strategy to address budgetary imbalances".
In adjusted terms, the Italian government is in line with its deficit target of 4.3 percent of gross domestic product for spending in 2005.
However, the 2006 budget deficit is likely to approach 5.0 percent of GDP amid weak economic growth and a debt ratio due to peak at 110 percent of GDP in 2007.
Kraemer added: "The negative outlook could revert to stable if structural measures were implemented that would ensure the resumption of an unambiguous, significant, and sustainable downward trend of the government debt ratio.
"Conversely, the rating would be lowered within 18 months if no signs of a coherent debt reduction strategy emerge after the 2006 elections."
08/08/2005 15:24 GMT |
