Report
Italy: a rather high budget, with several questionmarks
After several weeks of uncertainty, the M5S-Lega government approved the 2018 stability program update, which implies a deficit target of 2.4% for 2019. This is far enough from the 3% threshold to avoid the worst-case scenario, but still higher than the level expected by the markets in the past few days. For the time being, the government communicated only on the 2019 deficit target and the list of the measures which will be included. The first market reaction should be negative and we expect the BTP-Bund spread to widen. The position of the market-friendly Finance Minister Giovan n i Tria was clearly weakened and, even if his resignation has been denied, political tensions are likely to rise. We see the probability of a downgrade to BBB- before the end of October as high. As a result, Italian bonds could experience periods of sell-off similar to those we have seen in the last months.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Camille NEUVILLE
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