Italy wins Moody's upgrade for 1st time since 2002 on political stability

By Alessandra Migliaccio

  Italy achieved its first upgrade from Moody’s Ratings in more than 23 years, a victory for Premier Giorgia Meloni that ends an era when the country teetered at the brink of junk. 

The lowest credit score for any Group of Seven economy was lifted by one notch to Baa2, according to a statement on Friday. The outlook is now stable. 

 

“The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan,” Moody’s said in a report on Friday.  

 

The company was the last holdout among rating assessors, having waited for Meloni to enter her fourth year in office before finally raising its credit score to recognize Rome’s campaign to repair the public finances during an unusual period of political stability.

 

Moody’s had cut Italy to Baa3, the final rung of investment grade, during the premiership of Giuseppe Conte in late 2018. That was the final move in a cycle of cuts that had begun during the euro zone’s sovereign debt crisis. 

 

In August 2022, Moody’s even skewed its assessment of the euro zone’s third-biggest economy toward a dramatic move to junk by shifting its outlook to negative. Meloni won power shortly after, and the looming threat of a downgrade overshadowed her first year in office before the company reversed course in late 2023. 

 

Since then, her government has made strides to stabilize what remains the region’s second-biggest debt pile, and to get Italy’s budget deficit down to the European Union’s 3 per cent-of-output ceiling as soon as this year. Achieving that would allowing it to exit the bloc’s monitoring regime for fiscal troublemakers.

 

“We expect that Italy’s high government debt burden will gradually decline from 2027 onwards,” Moody’s said.

 

The Moody’s move is the fourth by a credit assessor this year, though it still leaves the country at least one notch down from the levels of rivals. S&P Global Ratings already upgraded Italy in April without bothering to shift first to a positive outlook, and Fitch Ratings raised its own score in September. 

 

Smaller rivals have gone further: last month, Morningstar DBRS gave Italy the best rating from any assessor in seven years, while Scope Ratings skewed its own view toward a similar move in due course.

 

Commenting on Moody’s upgrade, Finance Minister Giancarlo Giorgetti vindicates Italy’s fiscal efforts. 

 

“It’s further confirmation of the renewed confidence in this government and therefore in Italy,” he said in a statement.

 

Investors have also shifted views on Italy with the spread between its 10-year bond yields and those of Germany, a measure of risk in the region, now well below 80 basis points — less than a third of the level when Meloni took office three years ago.

 

Further improvements for Italy’s public finances may be harder to achieve from here on, at a time when debt remains well above 130 per cent of economic output, and growth limited to a likely 0.5 per cent this year, by the government’s own reckoning.

 

That will challenge Meloni and Giorgetti in their fiscal balancing act of pleasing voters with potential tax cuts for companies and families before national elections in 2027, while also continuing to adhere to fiscal reticence.