Moody’s downgrades Italy two notches

Moody’s has cut Italy’s credit rating by two notches to Baa2 as the euro area’s third biggest economy faces higher funding costs and contagion risk from Greece and Spain.

The rating company said further downgrades are possible, according to a statement released in Frankfurt today.

“Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets,” said Moody’s.

“Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”

Italy’s bond rating was cut from A3 to Baa2, which is two levels above junk and one above Spain.

While Italy is on track to bring its budget deficit within the European Union limit this year, its 10-year bond yield has risen above 6% in recent weeks after Spain sought a bailout.

Moody’s also cited “increasingly fragile market confidence, contagion risk emanating from Greece and Spain and signs of an eroding non-domestic investor base”.

The rating “could be downgraded further in the event there is additional material deterioration in the country’s economic prospects or difficulties in implementing reform,” said Moody’s.

 

This article was first published on Investment Week

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