Japan’s R&I agency downgrades Italy, Spain

Japanese rating agency Rating and Investment Information Inc. (R&I) has downgraded its ratings of Italian and Spanish government debt, citing a deteriorating outlook for the countries.

Italy’s foreign currency issuer rating has been downgraded to ‘A’ from ‘A+’ with a negative outlook. The domestic currency issuer rating is similarly dropped to ‘A’ from ‘A+’, with a negative outlook.

“Italy’s economy has been in negative growth due to weak domestic demand, particularly in investments. It will likely take time before the Italian government strengthens the basis for growth through structural reforms, suggesting the difficulty of coming out of slow growth in the short term. Given this situation, reducing the government’s excessive debt burden may take longer than expected. In consideration of these circumstances, R&I has downgraded Foreign and Domestic Currency Issuer Ratings for Italy to A,” R&I said in a statement.

It continued: “Italy’s real gross domestic product (GDP) growth for 2012 appears to have declined by about 2%. While slight growth in exports is maintained and net exports are expected to contribute to economic growth positively, domestic demand has fallen significantly. The economic environment will likely remain harsh, and both the Italian government and the European Commission (EC) forecast that Italy’s GDP will shrink slightly in 2013 as well.”

One key difference between Italy and Spain remains their respective financial systems. R&I said that there was no cause for “significant concern” over Italy on this matter, because of improvements in liquidity.

Spain’s situation is more challenging, hence R&I’s decision to cut its foreign currency issuer rating on its sovereign debt to ‘BBB’ from ‘BBB+’, with a negative outlook.

“R&I has downgraded the rating for Spain to BBB reflecting its evaluation that the economy is increasingly harsh with an expectation for continued negative economic growth of over 1% in 2013, and a slight uncertainty over whether its fiscal consolidation measures will proceed steadily,” it said, adding: “the debt crisis has yet to be contained and R&I sees no bright spot in prospects for the eurozone economic and financial situation. Because of such conditions, concerns about a further contraction of the Spanish economy and a deterioration of the funding environment remain strong.”


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