In a historic decision, Moody’s upgrades Italy’s sovereign rating after almost a quarter of a century, reflecting growing confidence in the public finances of the eurozone’s third-largest economy and thus rewarding the stability of the Meloni government, along with its efforts to reduce the deficit. The American agency raises its rating from Baa3, the lowest level of investment grade, to Baa2, while the country’s outlook goes from positive to stable. «We are satisfied with Moody’s promotion, the first after 23 years. A further confirmation of the newfound trust in this government and therefore in Italy”, commented the Minister of Economy and Finance Giancarlo Giorgetti. In recent months, Giorgia Meloni’s government has reduced the budget deficit target for 2025 to 3% of GDP, aiming to drop even below this threshold to exit the infringement procedure a year early, thanks to more solid tax revenues and lower debt servicing costs. Moody’s has not improved Italy’s rating since May 2002, when it went from Aa3 to Aa2, and the rating had been stuck at Baa3 since the downgrade decided in October 2018.
«The upgrade – explains the agency – reflects a solid and constant trend in political stability and economic policies, which strengthens the effectiveness of the economic and fiscal reforms and investments made within the framework of the National Recovery and Resilience Plan (Pnrr). It also indicates the prospect of further policy interventions to support growth and fiscal consolidation beyond the plan’s expiration of August 2026. As a result, we expect Italy’s high public debt burden to begin to gradually decline from 2027 onwards.” As for the Pnrr, «Italy is making good progress in achieving the milestones and targets of the Pnrr, ranking among all EU countries as a leader in terms of number of payment requests and disbursements».
The stable outlook balances the strengths and challenges of Italy’s credit profile. On the one hand, Moody’s observes, “reforms aimed at improving the efficiency of the public sector and the business environment more generally could lead to a more substantial improvement in growth prospects, with positive effects on public finances”. On the other hand, he continues, “the reduction of Italy’s high debt depends on relatively robust GDP growth and an increase in primary surpluses. This means that slower growth or less marked fiscal consolidation than we expect would compromise our projections of debt reduction.”
“The solid banking sector, the solidity of private sector balance sheets and the good external position constitute further factors supporting economic stability”, adds the rating agency, according to which “these positive elements mitigate but are unlikely to completely offset the negative impact on the potential economy resulting from the aging of the population”. Moody’s decision, which could lead to lower interest rates on debt, crowns a series of rating improvements for Italy that started in April and has now arrived in the autumn review cycle. The first agency to lead the way was S&P which in April raised Italy’s rating to BBB+ from BBB with a stable outlook, confirming this judgment in the latest revision. The last to change it was Fitch, which on 19 September promoted the country’s rating, raising it from BBB to BBB+, with an outlook changed from “positive” to “stable”. In mid-October, however, Dbrs had raised Italy’s rating to A, while the Dbrs Morningstar agency had raised it to A (low) from BBB (High), with a stable trend from positive. At the end of October, Scope had changed the outlook from stable to positive, alongside the BBB+ attributed to BTPs.
Great satisfaction from Prime Minister, Giorgia Meloni, for Moody’s upgrade on Italy, “an important result that hasn’t happened for 23 years”. In a statement released while she was in Johannersburg for the G20, the Prime Minister stated: «This recognition rewards the serious and responsible work of our government, the result of coherent choices on finances and structural reforms, but also the work and commitment of our companies and our workers». «I would like to thank Minister Giorgetti in particular for his constant and scrupulous effort in managing the accounts. Moody’s promotion is a confirmation of the markets’ trust not only in the government, but in Italy as a whole.”