Morningstar DBRS kept Italy at A- (low) and left the outlook stable on Friday, saying the country is likely to keep honoring the European Union's budget rules. The firm said the EU's fiscal framework would restrain any administration tempted to stretch public finances.
"DBRS considers the main political risk to be an inconclusive election result leading to a hung parliament." - Morningstar DBRS report
Even with that risk, it does not see a sharp turn away from discipline. "It sees limited risk that the next administration will significantly deviate from the EU fiscal rules, given the constraints of the European fiscal framework and market discipline." - Morningstar DBRS report
DBRS pointed to the likely legacy of Prime Minister Giorgia Meloni's government for the euro area's third-biggest economy. Despite its populist tone, her coalition narrowed the deficit and expects to depart the EU's special monitoring regime in the near term.
Rome delivered a three-year fiscal plan to Brussels this week that targets a deficit below 3% over the next year. Meloni's latest budget is the last before a general election, and her three-party coalition is preparing to confront a new challenger, ultranationalist politician Roberto Vannacci.
Markets reward calm perspective, so sign up for the free daily Market Briefs newsletter for five-minute briefs across economy, stocks, crypto, and real estate
The report also drew a contrast with France, where political fragmentation has made it harder for President Emmanuel Macron to repair public finances.
DBRS said the next leadership cannot let the public finances slip. "The next government will need to reaffirm Italy's commitment to prudent fiscal policy and set out credible measures." - Morningstar DBRS report
It flagged structural headwinds, too. "A rising interest burden, adverse demographic trends and higher defense spending requirements will continue to constrain the fiscal outlook." - Morningstar DBRS report
DBRS said last year's upgrade returned Italy to its highest standing with any large rating agency dating back to 2018.
Clarity matters when headlines blur, so sign up for the free daily Market Briefs newsletter to decode economy, markets, crypto, and real estate fast
