Italy’s economy has shown resilience and strength in its post-pandemic recovery, outperforming other large economies in the euro area. Despite the impact of a more restrictive monetary policy and a weaker external context, economic growth is expected to gradually resume as household purchasing power and financial and external conditions improve. The implementation of Italy’s National Recovery and Resilience Plan is expected to help mitigate weaker residential investment over the next two years.
Despite reaching 7.4% of GDP in 2023, Italy’s fiscal deficit was below the government’s forecast due to tax credits such as the Superbonus. However, Italy’s public debt-to-GDP ratio fell faster than expected to 137.3% of GDP in 2023 thanks to nominal GDP growth. Although Italy’s public debt level remains high and potential GDP growth is weak, the country’s banking system is in a stronger position in terms of capitalization and net impaired assets.
The Morningstar DBRS agency has confirmed Italy’s BBB (high) rating with a stable trend due to several supporting factors, including membership in the European Union and support from the European Central Bank. The economy benefits from diversification and resilience in the manufacturing sector, as well as a positive net international investment position. However, Italy’s political context remains a constraint on credit ratings due to hindered government stability and ability to address economic challenges.