Italy’s Resilience and Growth: Confirming the BBB Rating by Morningstar DBRS

The DBRS Morningstar agency has confirmed Italy’s BBB (high) rating with a stable trend. Despite the impact of a more restrictive monetary policy and a weaker external context, economic growth is expected to gradually resume as household purchasing power and financial and external conditions improve. The implementation of Italy’s National Recovery and Resilience Plan is expected to help mitigate weaker residential investment over the next two years.

According to the agency, the risks for credit ratings are balanced, and Italy’s post-pandemic recovery has been stronger than expected, outperforming other large economies in the euro area. However, Italy’s fiscal deficit reached 7.4% of GDP in 2023, above the government’s forecast of 5.3% of GDP, largely due to tax credits such as the Superbonus. Although Italy’s public debt-to-GDP ratio fell faster than expected to 137.3% of GDP in 2023 thanks to nominal GDP growth, this was largely offset by weak potential GDP growth.

The fiscal impact of these incentives is expected to decrease in the future, but will lead to increased financial needs and a rise in Italy’s public debt/GDP ratio in the coming years. The economy benefits from diversification and resilience in the manufacturing sector, as well as a positive net international investment position. Although Italy’s public debt level remains high, its banking system is in a stronger position in terms of capitalization and net impaired assets than other European countries facing similar challenges.

Morningstar DBRS confirms Italy’s Bbb (high) rating with several supporting factors, including membership in the European Union and support from the European Central Bank. Despite political instability hindering government stability and economic challenges being harder to address due to this instability