Italy lost the only "A" remained one of the four major rating agencies, yesterday, following the downgrading of the Dbrs from the "A-low" (i.e. A-) to BBB-high (i.e. BBB+). A "big leap", this should, however, have limited impact on government bond yields and on the premium risk-Country for the protection effect of the QE of the Ecb. Italy, moreover, is already perceived by the markets as a Country with "triple B", and then the decision of the Dbrs is not a novelty. The fact that the agency, with headquarters in Canada has confirmed a trend, an perspective of the new rating, “stable”, adds a positive element, even if of little consolation: the BBB high trend stable so it remains the highest rating of th e big four, followed by BBB+ by Fitch has a negative outlook. The biggest impact of this withdrawal will be indirect, because it will worsen – not a little – the haircut applied by the Ecb on Italian government securities delivered as collateral in the refinancing operations (see article below): the Treasury may be forced to adjust to the rise in the yields of the BTp in the case in which the Italian banks started to buy government bonds of spain (who have the In-low of Dbrs), as the best collateral at the Ecb.
The main reason of the downgrade is attributed to the “fragile” growth perspective “of low growth potential,” “lack of competitiveness, low productivity of labour and capital” in Italy, burdened by a debt/Gdp ratio to 133%, which makes the Country particularly exposed to shocks. The economic recovery is sluggish it is combined with other negative factors detected by Dbrs in the downgrade, including “uncertainty about the ability of politics” – and the government Gentiloni – to bring forward structural reforms to boost growth, the weakness and vulnerability is a persistent banking system, despite the intervention of Mps and the bottom 20 billion, the level of Npls remains “very high” and reduces the flow of credit to support the economy. Last but not least, the dynamics of the public debt, which does not decrease as expected compared to the Gdp.
The policy framework for Dbrs is strongly uncertain: the government Gentiloni, defined in “interim” despite being supported by the same majority of the government Renzi “may have less room for manoeuvre to bring forward the measures for growth”, being dominated by the electoral reform. The uncertainty is also highlighted in the “lack of clarity” on the timing of the next elections, if not flash this year, when? Dbrs expects that electoral reform will lead to a system that is more proportional that will reduce the possibility of having political parties anti-euro to come to power and will increase the likelihood of a coalition government between the main parties: but it is not enough for Italy, which needs to address the issue of productivity, corporate profits, low employment and the low level of investment, education, research, development.
In the stable outlook, which will soften the derating of only one step, Dbrs recognizes the strengths of Italy: the commitment to fiscal consolidation, the high primary surplus is among the best in Europe, the cautious management and flexible public debt held mainly by Italian private debt is among the lowest in the advanced countries, a pension system well-funded, and an economy large and diverse.
Dbrs has made the "big leap" to remove the "A" to Italy, almost four years after the last relegation, dating back to march 2013 : now for a little while and will remain on the window.
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