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Fitch downgrades Italy's debt rating to BBB-

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.

April 29, 2020 / 04:46 PM IST

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.

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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.

first published: Apr 29, 2020 04:40 pm