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Investing.com -- Fitch Ratings has upgraded Italy’s Long-Term Foreign-Currency Issuer Default Rating to ’BBB+’ from ’BBB’ with a Stable outlook, citing improved fiscal resilience and a track record of prudent budget management.
The rating agency also upgraded Italy’s Short-Term IDR to ’F1’ from ’F2’ in its Friday announcement.
Fitch expressed increased confidence in Italy’s fiscal trajectory, supported by "a growing record of fiscal prudence and strong commitment to meeting short- and medium-term fiscal targets under the new EU fiscal framework."
The agency expects Italy to achieve a budget deficit of 3.1% of GDP this year, outperforming the official target of 3.3%, driven by solid tax revenue performance from an expanding tax base and rising tax compliance.
Italian authorities remain committed to spending restraint, with plans to reduce the deficit to 2.6% by 2027 and below 2% by 2029, broadly in line with Fitch’s forecasts.
Italy’s debt fell by over 20 percentage points between 2020 and 2024, returning to pre-pandemic levels faster than expected. Fitch projects debt will increase modestly from 135.3% of GDP in 2024 to 137.5% in 2026 before declining by around 1 percentage point annually to reach 134% by 2030.
Despite debt levels remaining much higher than peers (the ’BBB’ median was 57.3% in 2024), Fitch sees reduced financing risks as Italy’s spread to core eurozone economies continues to narrow.
The country’s external position has also improved, with the current account surplus reaching 1.1% of GDP in 2024, expected to be maintained through 2027. Italy’s net international investment position has improved to a record-high surplus of 15.3% of GDP at the end of 2024.
Fitch forecasts economic growth of 0.6% in 2025, accelerating to an average of 0.8% in 2026-2027, below the ’BBB’ median of 2.5%. Domestic demand, particularly investment, is expected to drive short-term growth, offsetting weakness in the external sector.
The banking system remains sound with robust capital positions, abundant liquidity, and improved asset quality. The non-performing loan ratio stood at 2.8% at the end of 2024, a historically low level.
Factors that could lead to a future downgrade include continued increases in public debt or shocks affecting medium-term growth potential. A positive rating action could follow a significant decline in public debt or evidence of higher medium-term growth potential.