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Standard and Poor's downgraded its unsolicited ratingson Italy by one notch to A/A-1 and kept its outlook on negative, a major surprise that threatens to add to concerns of contagion in the debt-stressed euro zone.
The single currency skidded over half a cent to $1.3606 after S&P said the cut reflected its view of Italy's weakening economic growth prospects.
Italy's fragile governing coalition and policy differences within parliament will likely limit the government's ability to respond decisively to the challenging domestic and external macroeconomic environment, the agency said.
"In our opinion, the measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program," said S&P.
The move from S&P came as a surprise as the market had thought Moody's was more likely to downgrade Italy first. Moody's last week said it would take another month to decide on its action.
The downgrade came as Greece struggles to meet demands from lenders for yet more austerity measures.
"It's just more of the same negative news," said Stephen Roberts, a senior economist at Nomura in Sydney.
"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here," he added, pointing to a sharp fall in the Australian dollar on the news.
S&P 500 futures also dropped 0.7 percent and early hopes for a bounce in Asian shares on Tuesday looked to be still-born now.
European stocks had already slid on Monday, while yields on Italian and Spanish bonds rose sharply on fears of a Greek default, compounded by the failure of EU finance ministers to agree new steps to resolve Europe's debt crisis at weekend talks.
International lenders told Greece on Monday it must shrink its public sector and improve tax collection to avoid running out of money within weeks as investors spooked by political setbacks in Europe dumped risky euro zone assets.
The single currency skidded over half a cent to $1.3606 after S&P said the cut reflected its view of Italy's weakening economic growth prospects.
Italy's fragile governing coalition and policy differences within parliament will likely limit the government's ability to respond decisively to the challenging domestic and external macroeconomic environment, the agency said.
"In our opinion, the measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program," said S&P.
The move from S&P came as a surprise as the market had thought Moody's was more likely to downgrade Italy first. Moody's last week said it would take another month to decide on its action.
The downgrade came as Greece struggles to meet demands from lenders for yet more austerity measures.
"It's just more of the same negative news," said Stephen Roberts, a senior economist at Nomura in Sydney.
"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here," he added, pointing to a sharp fall in the Australian dollar on the news.
S&P 500 futures also dropped 0.7 percent and early hopes for a bounce in Asian shares on Tuesday looked to be still-born now.
European stocks had already slid on Monday, while yields on Italian and Spanish bonds rose sharply on fears of a Greek default, compounded by the failure of EU finance ministers to agree new steps to resolve Europe's debt crisis at weekend talks.
International lenders told Greece on Monday it must shrink its public sector and improve tax collection to avoid running out of money within weeks as investors spooked by political setbacks in Europe dumped risky euro zone assets.
Now ITALY is next in the row. Although, the reasons are genuine and so were in the case of US also. Why was there such a hue & cry over the ratings of uncle SAM.
ReplyDeletePresumably, the whole economy is going into a second (or double, as we call it) dip. The heat is being faced by the European countries also.
Lets see what measures the Govt. of India takes this time in prevention. Earlier the economy of India floated even amidst recession because of buoyancy. But the Govt. of India must realize that same is not the case this time. We are much more dependent on the global economy to progress. If a set of preventive measures is not taken soon, we will suffer again.
Once again one more Big Giant is in trouble......the Downturn in these economies will give a negative outlook towards the Indian Economy.......
ReplyDeleteBut,Today Indian Market was on Boom............
Still, Question is Unanswerable...........
MIND IT!!!!!!!
Lets see what next, United States now European countries are in trouble, Market is uncertain and such things keeps the uncertainty on high....
ReplyDeleteI agree with vishal.....
ReplyDeleteItaly falls under the category of "too big to fail, too big to bail." This fact is what is keeping investors, politicians and other world leaders watching Italy very closely.
ReplyDeleteAnd if we see towards the economic data of ITALY
then we can easily understand that why S&P downgraded the ITALY from A+ to A.
1.Italy has the eighth highest quality of life
2.Italy is the 23rd most developed country
3.Italy's economy has been one of the weakest in the eurozone. Where the eurozone has an average growth rate of 2%, Italy is less than half of that.
4.Italy's debt burden is 120% of its gross domestic product.
5.Italy's budget deficit is 4.6% of its gross domestic product.
The only silver lining to this dark cloud comes from the fact that the Italian crisis is different from Greece because much of the debt is owned by Italians which, in theory, allows for more flexibility on the terms of the payment.