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Moody's cuts Italy's outlook to 'negative' from 'stable'

Stock Markets Aug 05, 2022 05:50PM ET
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© Reuters. FILE PHOTO: Signage is seen outside the Moody's Corporation headquarters in Manhattan, New York, U.S., November 12, 2021. REUTERS/Andrew Kelly

(Reuters) -Global ratings agency Moody's (NYSE:MCO) cut Italy's outlook to "negative" from "stable" on Friday, weeks after Prime Minister Mario Draghi's resignation shook the country's political landscape.

Draghi, dubbed "Super Mario" due to his long career as a financial problem solver, had helped shape Europe's tough response to Russia's invasion of Ukraine and had boosted the country's standing in financial markets during his tenure.

"Risks to Italy's credit profile have been accumulating more recently because of the economic impact of Russia's invasion of Ukraine and domestic political developments, both of which could have material credit implications," Moody's said.

The agency affirmed Italy's sovereign rating at Baa3.

Italy's credit situation has also stoked concerns, with a government debt pile larger than those of the other four countries in the euro zone combined.

Moody's also noted higher funding costs, an increased risk that energy supply challenges would weaken economic prospects, and sluggish growth that may pressure Italy's fiscal strength.

Italy's economy ministry said in a statement that Moody's decision was "questionable".

"We remain confident that the implementation of Italy's recovery plan, of policies to relaunch investments and secure energy sources will promptly continue after the upcoming general elections," the Treasury said in a note.

With snap elections planned on Sept. 25, Italy has approved a new aid package worth around 17 billion euros to help shield firms and families from surging energy costs and rising consumer prices.

Despite the headwinds, preliminary data showed last month that Italy's economy grew 1.0% in the second quarter of the year from the previous three months, a stronger-than-expected reading.

Moody's cuts Italy's outlook to 'negative' from 'stable'

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