The DBRS Morningstar agency has confirmed Italy’s BBB (high) rating with a stable trend. Despite the challenges faced by the country, such as a high public debt level and weak potential GDP growth, Italy’s post-pandemic recovery has been stronger than expected, outperforming other large economies in the euro area. This resilience is attributed to several factors, including diversification and resilience in the manufacturing sector, as well as a positive net international investment position.
Morningstar DBRS has also highlighted Italy’s banking system as being in a stronger position in terms of capitalization and net impaired assets. However, the credit ratings are constrained by Italy’s political context, which hinders government stability and the ability to address economic challenges. For example, the fiscal deficit in Italy reached 7.4% of GDP in 2023, above the government’s forecast of 5.3% of GDP, largely due to the impact of tax credits such as the Superbonus. This has led to an increase in Italy’s public debt-to-GDP ratio, which is expected to rise further due to increased financial needs and weaker residential investment over the next two years.
Despite these challenges, DBRS Morningstar believes that Italy’s National Recovery and Resilience Plan will help mitigate some of these issues and provide support for economic growth. The plan includes measures such as investments in infrastructure, research and development, and job creation initiatives. While there are still risks associated with Italy’s economy, DBRS Morningstar remains optimistic about its future prospects given its strong manufacturing sector and positive net international investment position.