Monday, September 19, 2011

S&P downgrades Italy on weak economic outlook

Standard & Poor's Ratings Services cut Italy's sovereign credit rating late Monday, saying the nation's weakening economic growth and political uncertainty have dented its financial stability.

S&P now rates Italy's credit at A, down from A+, and kept its outlook on the country as negative, the agency said in a report issued Monday.

"The downgrade reflects our view of Italy's weakening economic growth prospects," S&P said. "Italy's fragile governing coalition and policy differences within parliament will likely continue to limit the government's ability to respond decisively to the challenging domestic and external macroeconomic environment."

S&P downwardly revised its estimates for Italy's GDP growth to an annual average of 0.7% between 2011 and 2014 -- a far cry from its previous projection of 1.3%.

"More subdued external demand, government austerity measures, and upward pressure on funding costs in both the public and private sectors will, in our opinion, likely result in weaker growth for the Italian economy," S&P said.

This slower pace of growth will in turn make the government's fiscal austerity goals more difficult to achieve, the agency said.

And if the country's plans for revenue reform aren't completed, or if political gridlock delays responses to the country's current financial challenges, Italy could accumulate even more debt and warrant another rating slash, S&P warned. more