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Italy: Still Resilient Amid Multiple Shocks

Over recent years, Italy has faced multiple shocks: the pandemic, supply-side bottlenecks, and an energy shock, all amid political uncertainty and three different governments. However, none of these have translated into significant economic scarring thus far, contributing to stability in Italy's rating at BBB (high). In fact, Italy's post pandemic recovery has been better than expected and growth has been stronger than its peers. Potential GDP growth appears to be improving and the public debt-to-GDP ratio is expected to continue to decline in coming years, although at a more moderate pace compared with the last two years. We foresee a shift to a higher level of economic growth compared with the pre-pandemic period, along with a gradual improvement in the public balance contributing to future debt-ratio declines.

“The rise in interest costs will be met with firm progress on fiscal consolidation,” says Carlo Capuano, Senior Vice President, Global Sovereign Ratings. “We foresee Italy complying with the EU fiscal framework when it comes back into force next year”.