S&P upgrades Italy on rallying economy

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Europe

S&P has nudged up Italy’s rating one notch, citing the country’s increasing economic recovery on the back of rising private-sector investment and employment.

The agency on Friday said it was raising Italy’s sovereign credit rating from BBB- to BBB, with a stable outlook.

S&P analysts "expect real gross domestic product (GDP) growth this year at about 1.4 percent and to average 1.3 percent in 2018-2019."

VCG Photo

Factors supporting the upgrade include improving economic prospects, expansionary monetary policy, reduced risks from its banking sector and expectations that the government would be able to make progress in reducing its “very high” government debt-to-GDP ratio.

The government "will achieve this year's budget deficit target of 2.1 percent of GDP," setting Italy's very high government debt-to GDP-ratio "on a declining path," according to the statement.

Italy's improved economic outlook is also down to "the resolution of the crises related to Monte dei Paschi di Siena and two regional Veneto banks, and the quickening disposal of nonperforming loans (NPLs) in the banking system," S&P said.

Italy is slowly pulling out of two economic recessions that were sparked by the global financial crisis of 2008 and by the sovereign debt crisis of 2010. /VCG Photo

According to Bank of Italy data obtained from the Finance Ministry, gross NPLs held by Italy's banks were reduced from a total of 200.9 billion euros (about 233 billion US dollars) in December 2016 to 172.8 billion euros in August 2017.

Italy is slowly pulling out of two economic recessions that were sparked by the global financial crisis of 2008 and by the sovereign debt crisis of 2010. The prolonged crisis caused households and businesses to default on their loans, which piled up on bank balance sheets.

Beginning in 2015, the Italian government struggled to reform the country's banking sector to make it more crisis-proof, and to get rid of its NPLs.

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