Moody's Investors Service warned Friday it may cut Italy's credit rating, citing growth risks in the economy, a large budget deficit and ongoing debt woes in Europe.
Moody's said it placed Italy's Aa2 local and foreign currency government bond ratings 'on review for possible downgrade, while affirming its short-term ratings at Prime-1.'
'The Italian economy faces growth challenges in an environment characterized by long-term structural impediments to growth and potentially rising interest rates,' the ratings agency said in a statement.
'Structural economic weaknesses — mainly low productivity and important labour and product market rigidities — have been a major impediment to growth in the last decade and continue to hinder the economy's recovery from the severe recession it experienced in 2009.'
Amid rising interest rates and weak gross domestic product growth, the government may find it difficult to put the public debt-to-GDP ratio and the interest burden on a solid downward track, the agency explained.
The Moody's warning came after two sharp election defeats for the Italian prime minister, Silvio Berlusconi.
May 30 municipal elections saw the left take control of his Milan fiefdom, while on June 14 an overwhelming majority defeated four referendum questions: on nuclear power, a law to give Berlusconi legal immunity, and two on water privatization.
Moody's highlighted rising concerns about debt levels in the eurozone, where Greece is edging toward sovereign default.
'The fragile market sentiment that continues to surround European sovereigns with high levels of debt poses additional risks for Italy,' Moody's said.
'The continued stability of market demand for Italy's debt is uncertain at current yields.'
On May 20, another of the three major ratings agencies, Standard & Poor's, placed Italy on alert for a possible downgrade.
S&P warned it could lower Italy's rating to A+, its fifth-ranked rating and equivalent to Moody's A1.
Italy's rating with Moody's has been unchanged since May 2002, when it was raised a notch.
According to 2011 projections published Friday by the International Monetary Fund, Italy will have a budget deficit-to-GDP ratio of 4.1 per cent and public debt ratio of 120.6 per cent.
Source : New Age
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