Fitchslapped: Italy Downgraded To BBB+ (Outlook Negative)

Tyler Durden's picture

The France-based ratings agency has just joined China's Dagong, and US Moody's by Fitch-slapping Italy with a BBB ratings handle. Citing four main reasons: election results which and 'non-conducive' for further structural reforms, deeper than expected recession, greater than expected budget deficits, and a weak government less able to respond to shocks. But apart from all that, as we noted earlier, Italian stocks and bonds are bid.


BTP Futures not happy...


Via Fitch:


Fitch Ratings-London-08 March 2013: Fitch Ratings has downgraded Italy's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BBB+' from 'A-'. The Outlook on the Long-term IDRs is Negative. Fitch has simultaneously affirmed the Short-term foreign currency IDR at 'F2' and the common eurozone Country Ceiling for Italy at 'AAA'.


The downgrade of Italy's sovereign ratings reflects the following key rating factors:

  • The inconclusive results of the Italian parliamentary elections on 24-25 February make it unlikely that a stable new government can be formed in the next few weeks. The increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy amidst the deep recession.
  • Q412 data confirms that the ongoing recession in Italy is one of the deepest in Europe. The unfavourable starting position and some recent developments, like the unexpected fall in employment and persistently weak sentiment indicators, increase the risk of a more protracted and deeper recession than previously expected. Fitch expects a GDP contraction of 1.8% in 2013, due largely to the carry-over from the 2.4% contraction in 2012.
  • Due to the deeper recession and its adverse impact on headline budget deficit, the gross general government debt (GGGD) will peak in 2013 at close to 130% of GDP compared with Fitch's estimate of 125% in mid-2012, even assuming an unchanged underlying fiscal stance.
  • A weak government could be slower and less able to respond to domestic or external economic shocks.

The 'BBB+' rating reflects:

- The rating remains supported by the relatively wealthy, high value-added and diverse economy with moderate levels of private sector indebtedness.

- Italy has progressed substantially over the past two years with fiscal consolidation. Public sector deficit was 3% of GDP in 2012, a result of 2.3pp fiscal consolidation in structural terms, according to the recent estimate of the European Commission.

- The fiscal measures already adopted should be sufficient to deliver a further narrowing of the budget deficit in 2013 despite the continuing recession. Fitch expects the deficit in 2013 to be around 2.5% of GDP. In structural terms, this would be close to the constitutional requirement of a balanced budget.

- Low contingent fiscal risks from the banking sector; an underlying budgetary position close to that necessary to stabilise the government debt to GDP ratio; and sustainable pension system underpins confidence in the long-term solvency of the Italian state.

- The Italian sovereign has demonstrated its financing flexibility and resilience during the crisis reflecting a strong domestic investor base and average duration of 4.74 years.


The Negative Outlook reflects the following risk factors that may, individually or collectively, result in a downgrade of the ratings:

- Deeper and longer recession than currently forecast by Fitch that undermines the fiscal consolidation effort and increases contingent risks from the financial sector.

- Economic and fiscal outturns that reduce confidence that GGGD will be placed on a firm downward path from 2014, after peaking in 2013.

- Sustained deterioration in fiscal funding conditions with adverse implications for financial conditions for the private sector and public debt dynamics.

- Re-intensification of the eurozone crisis could lead to a direct increase in GGGD through contingent liabilities due to additional EFSF/ESM commitments and could further weaken the economy through a fall in external demand, weaker confidence and tighter credit conditions.

- Prolonged uncertainty over economic and fiscal policies, failure to comply with the constitutional requirement of balanced budget.

The current Outlook is Negative. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to an upgrade. However, future developments that may, individually or collectively, lead to a revision of the Outlook to Stable include:

- Sustained economic recovery that supports ongoing fiscal consolidation.

- Confidence that the public debt to GDP ratio is on a firm downward path.
- Further structural reforms that enhance the competitiveness and growth potential of the Italian economy.

Financing conditions have been relatively benign in recent months. The potential backstop of external support from the ESM and ECB reduces the tail risk of a sovereign liquidity crisis for Italy and is supportive of the rating. While it remains uncertain under what conditions Italy would apply for official assistance, the request itself would be neutral for the rating.


The rating incorporates Fitch's assumption that the medium-term fiscal trajectory and commitments made by Italy under the Stability and Growth Pact and implied by the constitutional balanced budget amendments will be sustained by any new government.

Fitch assumes that Italy will start recovering in H213 from its deep recession as the large shocks causing the current recession (fiscal consolidation, tight financing conditions, and weak external demand) gradually fade away.

Fitch assumes that the contingent liabilities from the banking sector for the Italian government are limited. Nonetheless, if the recession is deeper and longer than currently anticipated, the risk that the government may be required to make further injections of capital, beyond the Monte dei Paschi recapitalisation, cannot be discounted.

Fitch maintains its assumption that medium-term potential growth is 1% even in light of structural reforms adopted over the last two years.

The current rating reflects Fitch's judgement that Italy will retain market access and, if needed, EU intervention would be requested and provided to avoid unnecessary strains on sovereign liquidity.

Furthermore, Fitch assumes there will be progress in deepening fiscal and financial integration at the eurozone level in line with commitments by euro area policy makers. It also assumes that the risk of fragmentation of the eurozone remains low. 

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Neethgie's picture

Italy isn't ok and even Dow 36000 won't change that

TBT or not TBT's picture

Deathbed demographics, just like Greece.

walküre's picture

..and most of Europe and North America

Africa on the other hand has great demographics but no future, no matter what, who or how or when.

swissaustrian's picture

adult diapers and caretaking robots

Manthong's picture

It’s just a darn good thing that flexible fiscal policy, oversight and regulation assures that no entity of consequence can ever be declared to default on anything  anymore .. anywhere,,  at any time.. at all.

Hippocratic Oaf's picture

BBB+ is still strong investment grade.

Do you get that fuzzy feeling of being long their bonds?


Send 'em to junk.

Buy Bullion Bitches+

knukles's picture

Election results are a symptom of the fucking problems.
They should have nothing  whatsoever to do with the ratings...

Jesus H Christ

Excuse, excuses, excuses...

How far down that rabbit hole have they really gone?


And the Jimbo O'Neil (GSAM) gets on Bolomie this am and tells us what needs to be done to fix the problem: They Need to Fix the Problem


FL_Conservative's picture

If Fitch had any balls, they'd do the same to the US credit rating.  Right now they're just shooting fish in a barrel.

Lore's picture

It's all going to be okay. A new pope is on the way. The Vatican has ooooodles of gold, and they'll hand it out to the needy.

Non Passaran's picture

I prefer adult robots and caretaking diapers

NotApplicable's picture

Long story short; when the wrong person wins the election, use it as an excuse to let everything break, while blaming "the people" who elected them.

Nothing new here.

Charles Wilson's picture

Politicians are always smarter than the people who elected them.

If the politician was more stupid than the people who elected him,

it would just prove how much more stupid the people were than the politician.


-Bertrand Russell (Para.)



Peter Pan's picture

I agree but without the guns, the drones, the wars, the prison population and of course without the great Bernanke.

Ham-bone's picture

One Simple ? - IS THERE ANY REAL WORLD IMPLICATION FROM LOWER RATINGS in the EU, US, or Japan???...particularly if the OMT is there to ensure Italian, Spanish, etc. rates don't rise???

Isn't this just completely meaningless now?  Meaningless except as a domestic talking point tool to push out Grillo and crazy ideas of young Italians to make any significant change.

mkhs's picture

Well, some funds maybe restricted to higher ratings.

Freddie's picture

Man you people are stupid.

The message is if you don't vote and dance the EUSSR, banksters, euro bankster families tune - you get downgraded and destroyed.

Italy should leave the euro.

Ham-bone's picture

Fred - how is Italy destroyed or even mildly harmed by this action?  Really just a symbolic slap but no real world implication.

Maybe implications of Italian bank follow on downgrades???

DoChenRollingBearing's picture

Opinion only!

Italy may be hurt some, but they are resilient, and it is a great place to visit, lots of crime (pickpockets) though.  Wonderful food and people.

mkhs's picture

Italian banks buy Italian bonds.  Who cares what some frog company says?

kliguy38's picture

Don't worry ....the Wizard of OZ is resurrected for the answer.........just follow the "yellow" brick road

Wile-E-Coyote's picture

Italy will be the next blood bath in Europe. There is no fixing this one..............then we have France.

Irelevant's picture

It depends on the definition of ok :)

H E D G E H O G's picture

it's the ole pot (France), calling the kettle (Italy) black thingy.............fuck yEU eurozone........................

IridiumRebel's picture

Don't S&P on me or I may get Moody which will lead to you getting Fitchslapped!

s2man's picture

Fitch slapped.  Way to coin a term, Tyler.  That one should stick.

HobbyFarmer's picture

Best headline ever.

Peter Pan's picture

Does one of those B's stand for Berlusconi?

IridiumRebel's picture

Berlusconi Bunga Bunga +

When it's America's turn it will be Ben Bernanke Bitchez +

Peter Pan's picture

Thanks for that. I now have a far better understanding of the way these ratings work.

I suppose when America hits CCC+ it will stand for Cash Can Corrupt

Freddie's picture

Morons.  This is the EUSSR and the banksters punishing the Italian people for not voting correctly.

Vote for Grillo and Berlasconi and we will downgrade and destroy you.  F the EUSSR, F the Euro, F the banksters and the european bankster families.

Grillo, Berlasconi and the Italian people should say F you - we are leaving the euro.

DoChenRollingBearing's picture

I agree.  And Italy has lots of gold (if they are not lying).

knukles's picture

Probably stored in London and FRBNYC
Good luck with that...

Boozer's picture

DoChen - next time your rolling to Rome give me a heads up.  My uncle has a restaurant near

the Circo Massimo, been there for 40 years...have one of those 3 hour lunches the italians are

famous for.  Short stroll and you find yourself in the Roman Forum.  No coneheads or tourists,

just politicians and bureaucrats working hard for that BBB rating.

btw - enjoy your posts


riley martini's picture

Exactly right Freddi it's the banksters way of saying all your money = [labor and resources] belongs to us. Retaliation from the fascist banskster overlords for the anti fascist vote.

Yen Cross's picture

 And they didn't wait for the markets to close. Yet the Dow barely blinks. The market compacency is truly astounding!

SheepDog-One's picture

And markets don't even bat an eye. DOW +500 on the week, and they'll just lock it in place for another +500 next week, or so it seems anyway.

swissaustrian's picture

So that caused the brief drop in equities and the spike in gold.

Edward Fiatski's picture

But, but, but... I thought...

+5 for the title, Tyler

The road to EUR 1.28 is paved with +BBBad economic data.

Peter Pan's picture

Don't forget that the BBB+ is an average. So one can only wonder what the rating of Italy would be if it was comprised only of its southern regions.

In fact the south must be totally broke.

It might not only be Scotland seeking to break away from the UK.