S.&P. Cuts Its Outlook for Italy

The revision, which raises the risk of a downgrade of Italy’s sovereign rating, may heighten fears that contagion from the debt problems in Greece, Ireland and Portugal could be spreading to the euro zone’s third-largest economy.

“In our view Italy’s current growth prospects are weak, and the political commitment for productivity-enhancing reforms appears to be faltering,” the S.P. said in a statement on Saturday. “Potential political gridlock could contribute to fiscal slippage. As a result, we believe Italy’s prospects for reducing its general government debt have diminished.”

Standard Poor’s affirmed its “A+” long-term and “A-1+” short-term sovereign credit ratings on Italy, which is slowly recovering from its worst downturn since World War II and has one of the world’s largest public debts.

In recent years, the ratings agency has often taken a bleaker view of the state of Italy’s economy, compared to its counterparts Moody’s and Fitch.

Moody’s currently has an “Aa2” rating for Italy, while Fitch rates it at “AA-”, which means S.P. has Italy two notches below Moody’s and one below Fitch.

Italy has weathered the financial crisis better than some of its peers but its growth has lagged behind the euro zone’s average for over a decade.

Italy hardly grew in the first quarter, with gross domestic product edging up 0.1 percent, compared with rises of 1.5 percent in Germany and 1 percent in France. Crisis-hit Greece grew 0.8 percent.

The Italian Treasury criticized the move by S.P., saying data on its economic growth and public accounts had “constantly been better than expected.”

However, Italy last month cut its growth forecasts for 2011, 2012 and 2013 and raised its projections for the public debt. It kept the deficit outlook unchanged.

The economy is now expected to expand by 1.1 percent this year, down from a previous forecast of 1.3 percent. In 2012, G.D.P. growth is seen at 1.3 percent, compared with 2.0 percent previously.

Public debt is expected to reach 120 percent of G.D.P. this year, before falling slightly to 119.4 percent in 2012.

In a statement after the S.P. outlook revision, the Treasury said several major international organizations like the International Monetary Fund and the European Commission had given “very different” assessments on Italy from that of S.P.

Article source: http://www.nytimes.com/2011/05/22/business/global/22credit.html?partner=rss&emc=rss