S&P keeps Italy at BBB+ with positive outlook, sees 2026 growth beating estimates

The rating decision

S&P Global Ratings confirmed Italy's sovereign ratings at BBB+ for long-term debt and A-2 for short-term debt, in both foreign and local currency, and kept the outlook positive. In January the agency had named two conditions for a rating upgrade: a stronger external financial position and a deficit path that would bring down the debt-to-GDP ratio. The outlook reflects its expectation that Italy's diversified private sector will keep supporting current account surpluses, though at a slower pace, despite uncertainty over trade and energy prices. S&P expects net external debt to fall below 150% of current account receipts by 2028, partly because goods exports have held up despite US tariffs. Giorgetti reacted to the decision almost immediately.

“It is a further confirmation that we are on the right track. In such difficult times, a confirmation is a success.”

Growth outlook and energy costs

S&P expects growth in 2026 to beat its earlier estimates, driven by exports and by stimulus from the Next Generation EU programme. For 2027 to 2029 it sees growth staying modest but stable. The agency flags structural constraints, including an ageing population and a shrinking working-age population, although the labour market is resilient. Once the Next Generation EU plan runs out, it says those challenges will re-emerge strongly. Data published the same day showed EU GDP up 0.5% in the third quarter, the eurozone up 0.4% and Italy flat. Istat recorded a 1.9% monthly rise in import prices in September, driven mostly by energy, and import prices were up 9.6% from a year earlier. Italy's energy deficit widened to 5.9 billion from 3.8 billion a year earlier, though the overall trade balance stayed in surplus at 2.1 billion. Exports rose 3.8% in value but fell 3.4% in volume. Across the EU, the trade balance swung in September from an 11.4 billion surplus a year earlier to a 16.8 billion deficit.

Public finances and the 2027 election

The deficit is the weak point in S&P's view. It expects the deficit to reach 3.5% of GDP in 2027, an election year, above the government's 3.4% target, after an estimated 2.9% in 2026. The higher target is meant to fund energy support and defence. The deficit should fall back to 2.9% by 2029, and S&P expects fiscal consolidation to resume after the election. It also expects the cash cost of Superbonus tax credits to decline in 2028 and 2029, although a government proposal to stretch out repayments could change that path. Debt stabilisation will be less pronounced than the agency had previously expected.

20262.9

20273.5

20292.9

2026

2.9 % of GDP

2027

3.5 % of GDP

2029

2.9 % of GDP

Data from the article text

Bond markets and risks

S&P forecasts the 10-year BTP yield at 3.9% in 2026, 4.0% in 2027, and 3.6% in 2028 and 2029. Markets were quiet on the day: the spread between 10-year BTPs and German Bunds closed at 104 basis points, unchanged from the previous session, and the 10-year Italian yield held at 4.41%. S&P calls the risks substantial. The budget margin is tight because primary surpluses since 2024 have been offset by high interest payments. The agency said it could lower the rating if Italy's economic, external or fiscal position deteriorated significantly from its forecasts, for example if uncertainty over trade or energy prices badly undermined consumer and business confidence.

2026

3.9 %

2027

4 %

2028

3.6 %

2029

3.6 %

Data from the article text