Italy hit with new S&P credit rating cut

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Standard & Poor's does not exclude a further downgrade in the near-term. Photo: Don Emmert/AFP
09:11 CEST+02:00
Ratings agency Standard and Poor's on Tuesday downgraded the sovereign rating of crisis-hit Italy by one notch to 'BBB' on worries over the country's ability to resist effects of a dilapidating recession.

"The rating action reflects our view of a further worsening of Italy's economic prospects coming on top of a decade of real growth averaging minus 0.04 percent," it said.

The agency also lowered its gross domestic product growth forecast for Italy in 2013, to negative 1.9 percent, compared with a prediction of negative 1.4 percent in March.

The announcement had a direct impact on the government's 10-year bonds, causing the spread between Italian and German bonds to hit 284 points on Wednesday.

Italy's debt rating was also hit with a negative outlook, meaning the agency does not exclude a further downgrade in the near-term.

"The outlook on the long-term rating on Italy is negative, indicating that we believe there is at least a one-in-three chance that the rating could be lowered again in 2013 or 2014," it said.

Last week, the International Monetary Fund (IMF) also cut its growth forecast for Italy, saying the prospects for the eurozone's third largest economy remained weak and unemployment was "unacceptably high".

The IMF said it expected the Italian economy to contract by 1.8 percent this year, from an earlier forecast for a 1.5-percent shrinkage.

For next year, however, it predicted in its annual report that the economy would grow by 0.7 percent but warned of possible stumbling blocks such as policy slippage and tighter credit.

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The IMF said Italy's government should speed up reforms and implement long-delayed privatizations.

"Accelerating the momentum for reform will be essential to jumpstart growth and create jobs," it said, warning market sentiment remained "fragile".

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