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Moody’s fits in again in the Italian political debate and launches a warning to the center-right: no deviation must be made from the National Recovery and Resilience Plan (Pnrr) by Draghi, under penalty of downgrading (downgrade) of public debt.
“We would probably downgrade Italy’s ratings if we were to anticipate a significant weakening of the country’s medium-term growth prospects, probably due to the failure to implement reforms to strengthen growth, including those outlined in the country’s NRP”, they comment in the most recent. Moody’s analysts report, underlining that a series of fiscal policies capable of not satisfying the markets could cause a wave of distrust on the sovereign title of Rome.
The reference is to the perspective that the center-right government in the process of formation does not continue on the path traced by the Draghi government and proposes to renegotiate the NRRR starting precisely from the reform requests, or produces a “decisive fiscal relaxation” with its maneuvers.
Moody’s postponed the periodic update on Italy’s sovereign rating on 30 September. In the summer, the US agency had worsened the prospects on the Baa3 rating assigned to Italy to “negative” from “stable” a few weeks after the fall of the Draghi government. Likewise, the trend of expectations for banks and utilities, all this despite both the financial institutions and the Italian energy majors having recorded considerable profits, despite the crisis.
Moody’s European analysts led by the British Gaurav Ganguly they see the risk that “the political environment hinders the implementation of structural reforms; that limited energy supplies weaken economic prospects; and that fiscal strength weakens”. The right-wing coalition “should attempt to renegotiate some aspects of the NRP, this will likely delay its implementation, putting downward pressure on investment spending when high inflation and energy supply risks are already weighing on economic activity” . In short, a scenario painted in the worst colors and which seems to identify Italy as the sick man of Europe. It is not the first time that Moody’s has devoted itself to a very problematic report on Italy.
The scenario built by Moody’s starting from the summer attributed to the government crisis and the end of the Draghi era the onset of problems that put the country and the debt at risk. Now relative political stability has been regained, pending that Giorgia Meloni check the prospects for transforming the majority at the polls into the majority of the government, but the prejudice on the center-right persists. There is no examination in Moody’s of how things could evolve on a continental and global level, but there is only a fideistic acceptance of the NRP as it was built, without thinking about the macroeconomic prospects and the scenarios of raw materials, gas in the head, which with their prices they can upset prices, and the monetary policy of the European Central Bank which will influence, and not a little, the yields of securities such as the BTP.
Moreover, Moody’s is isolated in defining center-right policies as the main possible cause of crisis. For Dbrs Morningstar, the differences in the agenda between Draghi and Meloni will not be decisive. “A right-wing government will not significantly alter Italy’s economic foundations”: said Dbrs Morningstar in a report on the Italian vote published hot after the victory of the center-right coalition The agency assigns Italy a BBB rating with stable outlook.
“The new executive will probably be less reformist and more protectionist than the Draghi government, but we do not foresee – underlines Dbrs – a complete derailment of the reform program or a dramatic change in the general fiscal strategy. The probable government led by Meloni should implement policies that do not alter the economic fundamentals of Italy in a significant way “, entering the normal framework democratic alternation.
S&P Global Ratings intervened in turn, highlighting how the budgetary room for maneuver is “limited” for Italy between a debt / GDP ratio that should be just under 138% at the end of 2022 and a deficit forecast for this. year at 6.3%. “Despite this, we do not anticipate imminent budgetary risks from the transition to the new government”, observes S&P, predicting a “mild recession” for Italy in 2023 with GDP falling by 0.1%. For 2024, GDP is expected to grow by 1.5%.
Finally, Fitch emphasizes the European problem on the risk that central banks that in the recent past have been involved in debt purchase programs such as quantitative easing will face losses on their securities portfolio due to the rise in interest rates. . This for the agency “could weaken their ability to contribute to the revenues of Governments” which usually takes place through the redistribution of profits and “there is a risk that in some cases sovereign issuers are called upon to restore the capital positions of banks. central “. The problem is identified as European, not strictly Italian. From this perspective, Moody’s appears to be a preliminary ruling against Rome, while all the observers of the Anglo-Saxon world remain cautious and await the moves of the new government. Aware that Italy is experiencing a difficult time but also of the fact that it is not the outcome of the polls, therefore the democratic normality of the country, that certainly represents a threat to an economy already besieged by skyrocketing bills and galloping inflation.
