Italy downgraded to BBB by S&P

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Standard & Poor’s has downgraded Italy’s credit rating on signs of the eurozone member’s continuing economic weakness.

The ratings agency has moved the country’s sovereign credit rating from BBB+ to BBB in expectation of “a further worsening of Italy’s economic prospects”. It also has a negative outlook on the rating, meaning further downgrades are possible.

“Italy’s economic output in the first quarter of 2013 was 8 per cent lower than in the last quarter of 2007 and continues to fall,” S&P says. “We have, moreover, lowered our GDP growth forecast for 2013 to minus 1.9 per cent, from minus 1.4 per cent in March 2013 and positive 0.5 per cent in December 2011.”

S&P argues that the country’s low economic growth stems from “rigidities” in its labour and product markets. It points to Eurostat data that suggests Italian wages have become “misaligned” with underlying productivity trends, which is weighing on the country’s competitiveness.

Italy is the eurozone’s third largest economy, but has been in recession since mid-2011 and has unemployment rate of more than 12 per cent.

Fellow rating agency Fitch rates Italy at BBB+ with a negative outlook while Moody’s rates the country Baa2 with a negative outlook.