Italy's Credit Outlook Upgraded to Positive by DBRS

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Italy's Credit Outlook Upgraded to Positive by DBRS

The credit rating agency DBRS has revised Italy's credit outlook from 'stable' to 'positive.' This change, announced today, indicates the agency's expectation for an improvement in Italy's financial trajectory. This news is seen as a supportive development for Prime Minister Giorgia Meloni's government.

The positive shift in the outlook aligns with a similar adjustment made by Fitch last Friday and the agreement reached between Rome and the European Commission on a seven-year budget adjustment plan. While DBRS acknowledged the challenges posed by Italy's significant public debt ratio, it confirmed the country's credit rating at BBB (high).

The agency emphasized Italy's revised budget deficit targets, which are set at 3.8% for this year and 3.3% for next year, with expectations that they will fall below the European Union's 3% threshold by 2026. Despite the high debt ratio, projected to rise to 137.8% of gross domestic product (GDP) by 2026, DBRS pointed to Italy's stronger-than-expected economic recovery, improvements in labor market performance, and higher growth potential.

The increase in debt is attributed to costly home renovation incentives introduced in the post-COVID period, known as Superbonus. DBRS noted that Italy's debt levels and interest obligations have made the country vulnerable to economic shocks and have restricted its capacity to implement further government measures.

Italy's economy grew by 0.7% in 2023, with most analysts predicting a similar growth rate for this year, which is below the government's official estimate of 1%. In June, the European Commission initiated disciplinary procedures against six countries, including Italy, to strengthen fiscal consolidation after the country's budget deficit reached 7.2% of GDP.

In the coming weeks, Italy is expected to receive further credit rating assessments from Moody's and Scope Ratings. Last week, S&P Global maintained Italy's 'BBB' rating with a 'stable' outlook.

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