Ratings agency Fitch has cut Italy's government debt grade, the first downgrade to a major economy to reflect the surge in public debt that is expected to hit countries dealing with the vast costs of the pandemic lockdown. The agency late Tuesday lowered Italy's rating by 1 notch to BBB- from BBB, just one level above junk bond status.
It expects the coronavirus outbreak to shrink the Italian economy by 8 percent this year and that there is a risk of a deeper downturn.
Italy has been one of the hardest hit by the outbreak of the new coronavirus — and is also one of the developed countries that can least afford its costs.
Its public debt of 135 percent of annual GDP is forecast to rise to 156 percent this year, according to Fitch.
Frequently Asked Questions
A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.
There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
High debt can spook investors, who already are asking for higher rates to lend to Italy.
The rates are still very manageable, but a rise to unsustainable levels could trigger a new financial crisis for Italy and Europe, where the country is part of the 19-nation euro currency union.
That kind of crisis occurred in 2011-2012, leading to speculation that the euro would break up because Italy would be too expensive to bail out if it could no longer raise money on bond markets.
The turmoil abated after a swift change of government in Italy, sharp budget cuts and a promise by the European Central Bank to ease market jitters.Follow our full coverage of the coronavirus pandemic here.