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Standard & Poor’s downgrades Italy by one notch

, July 10, 2013, 0 Comments

The ratings agency Standard & Poor’s has downgraded Italy’s credit score by one place. S&P noted that the country’s creditworthiness might well take a further hit in the not-too-distant future.

The New York-based agency announced on Tuesday that it was cutting the sovereign debt of Italy from BBB+ to BBB over worries that the country might not be able to absorb the effects of a worsening 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 -0.04 percent,” S&P said in a statement.

S&P said that excessive rigidity in the Italian labor and product markets was the main reason for the country’s poor economic performance. It said there was an expectation that gross domestic product (GDP) would shrink by 1.9 percent this year. A previous prediction was that GDP would shrink, but only by 1.4 percent.

Big debts, little hope

The agency noted that a stagnant economy would make it more difficult for the Italian government to trim public debt, which currently stands at some 130 per cent of GDP. The figure is one of the highest among developed economies, S&P observed.

The International Monetary Fund (IMF) last week also cut its growth forecast for Italy. It said that the eurozone’s third largest economy remained in a weak state and that unemployment was “unacceptably high.”

Source: Deutsche Welle |