MILAN, Oct 25 (Reuters) - Fitch revised up its forecast for Italy’s public debt on Friday, saying it would peak at 133 percent of gross domestic product next year, as it affirmed its long-term rating on the euro zone’s third-largest economy at “BBB+”.
In March, Fitch predicted that 2014 debt would be 130 percent of GDP. It said on Friday the increase in the debt-to-GDP ratio was primarily due to one-off-measures, including the repayment of debt arrears owed by the state to businesses in 2013-14. Debt was expected to remain above 120 percent of GDP until 2018, it said.
Fitch, which maintained a negative outlook on Italy’s rating, said Rome had progressed substantially with fiscal consolidation and that an economic recession which started in 2011 was expected to end this year.
It confirmed its forecast of a GDP decline of 1.8 percent for 2013, to be followed by growth of 0.6 percent in 2014, and 1 percent in 2015.
However, it warned that Italy’s growth potential was weak compared to both rating peers and other euro zone countries, and said the fact debt was forecast to stay above 120 percent for several years left “very limited fiscal space to respond to adverse shocks.”
Among risk factors that could lead to a downgrade, Fitch cited a new bout of domestic political turmoil, a longer-than-expected recession, and any economic and fiscal developments which undercut confidence that debt will be “on a firm downward path from 2014-15.”
Fitch also singled out the risk of possible significant public recapitalisation needs for Italy’s financial sector, on top of a 4.1-billion-euro state bailout for its third-biggest bank, Monte dei Paschi di Siena.
Such needs may arise, for example, in the context of a health-check-up of euro zone lenders to be carried out by the European Central Bank over the next year, it said. Fifteen Italian lenders will be subjected to the asset quality review. (Reporting by Silvia Aloisi; editing by Ron Askew)