Moody's: Clouds on Italy's outlook due to Ukraine and Draghi

Ratings agency Moody’s downgraded the outlook for Italy’s economy to negative from stable, keeping the country’s credit rating at Baa3, citing the impact of Russia’s invasion of Ukraine and political developments in the country after the departure of Mario Draghi.

“While growth and fiscal developments provided positive developments in 2021 and early 2022, risks to Italy’s credit profile have accumulated more recently due to the economic impact of Russia’s invasion of Ukraine and domestic political developments, both of which could to have significant credit effects”, the house said in its assessment last night.

According to Moody’s, the first reason for the diversification of the outlook of the Italian economy is the increased risks that the political environment will prevent the implementation of structural reforms. “The end of the Draghi government and early elections increase political uncertainty and the uncertainty of policy decisions amid a challenging economic environment,” Moody’s notes.

The second reason concerns the increased risk of energy supply difficulties weakening the economic outlook. As it states, the significant dependence on gas exposes Italy to possible further cuts in the supply of natural gas from Russia, as well as to high energy prices. It acknowledges, however, that the government has taken steps to reduce gas consumption and diversify supplies, with dependence on Russia reduced to 25% from 40% of total imports.

He noted that Italy is in a better position than other European countries, such as Germany, thanks to its liquefied natural gas terminals and pipeline connections with North Africa, Northern Europe and Central Asia, which offer alternative sources of gas supply, without need new infrastructure.

Finally, the house cites the risk that Italy’s fiscal strength could be further weakened by slower growth, higher borrowing costs and weaker fiscal discipline.

Source: KYPE

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