In a surprising move, S&P Global Ratings has upgraded Italy's debt rating from BBB to BBB+, reflecting a stable outlook for the country's economic future. This decision comes on the heels of a positive assessment from Fitch, which confirmed its own BBB rating for Italy just a week earlier. The announcement was made late on April 11, 2025, and has been met with approval from Italian officials, particularly from the Minister of Economy, Giancarlo Giorgetti.
Giorgetti expressed satisfaction with the upgrade, stating, "The judgment of S&P rewards the seriousness of the Italian government's approach to fiscal policy. In a climate of general uncertainty, prudence and responsibility will continue to be our line of action." This sentiment echoes the government's commitment to maintaining a balanced budget amidst ongoing economic challenges.
The upgrade was largely attributed to the positive results achieved by Italy at the end of 2024, which surpassed expectations. The country's debt-to-GDP ratio stood at 135.3%, slightly better than the anticipated 135.8%. Similarly, the deficit was reported at 3.4%, compared to the expected 3.8%. These figures have helped create a buffer that could withstand potential shocks from the ongoing trade tensions initiated by the Trump administration.
S&P's analysts noted that the suspension of most tariffs for 90 days, as announced by President Trump, has not eliminated the uncertainty surrounding the economic landscape. They emphasized that if the trade tensions remain unresolved following this suspension, there could be significant implications for Italy's credit quality. According to S&P, "If the currently suspended U.S. tariffs were fully implemented, the economic consequences would be broad and deep."
The rating agency pointed out that while Italy's public debt remains high, it is expected to stabilize starting in 2028. They forecast a modest GDP growth of 0.6% for 2025, a figure that reflects the potential impact of American tariffs and the overarching uncertainty in global political climates.
In their report, S&P highlighted Italy's diversified economy and the private sector's savings reserves as strengths, while also acknowledging the challenges posed by high public debt and demographic issues. The agency stated, "The stable outlook balances the fundamental strengths of Italian credit with its credit weaknesses, namely high levels of public debt and demographic challenges."
Despite the cautious optimism surrounding the rating upgrade, S&P warned that they would consider downgrading Italy's rating if the country's economic, external, and fiscal positions deteriorate significantly beyond current forecasts. They noted that such deterioration could arise from the ongoing trade shock, which might undermine consumer and business confidence, as well as impact the balance of payments.
Conversely, S&P indicated that they would increase their ratings if Italy continues to reduce its budget deficit and places its public debt on a solid downward trajectory. The agency also mentioned that improvements in Italy's potential economic growth, particularly beyond the 1% mark through structural reforms, could lead to a more favorable rating.
The government's fiscal strategy, as outlined in the Documento di finanza pubblica (Public Finance Document), is set against a backdrop of rising economic uncertainty. The document, which is currently under review by the Italian Parliament, projects a GDP growth of 0.6% for the year, down from earlier estimates of 1.2%. This slower growth rate is attributed to various factors, including the potential impact of tariffs and financial market volatility.
Italy's economic recovery plan, known as the Piano Nazionale di Ripresa e Resilienza (PNRR), is seen as crucial for maintaining market stability. S&P noted that the government's stable parliamentary majority and public support enhance the likelihood of continued progress in implementing these reforms.
However, challenges remain. The government has faced criticism over its handling of certain economic initiatives, such as the Transizione 5.0 plan, which aimed to support businesses in their transition to digital and energy-efficient practices. Reports indicate that the uptake of this plan has been lower than expected, with only 500 million euros drawn down out of a potential 5.7 billion euros available by mid-2026.
Additionally, the concordato preventivo, a tax agreement for VAT numbers, has seen limited participation, with only 13% of eligible entities opting in. This has raised concerns about the effectiveness of the government's fiscal measures and its ability to stimulate economic growth.
Despite these hurdles, the Italian government remains committed to addressing demographic challenges and supporting family policies. Giorgetti reiterated the government's focus on safeguarding fiscal discipline while responding to new economic challenges, including those posed by international trade and security issues.
In summary, the recent upgrade of Italy's debt rating by S&P Global Ratings reflects a cautiously optimistic outlook for the country's economic future. While challenges remain, the government's commitment to fiscal responsibility and ongoing reforms could provide a pathway for stability and growth in the years ahead.
