S&P downgrades Italy's credit on weak prospects

AP News
Posted: Jul 09, 2013 2:31 PM

NEW YORK (AP) — Standard & Poor's Ratings Services is downgrading Italy's credit, saying the country's economic prospects are getting weaker.

S&P lowered its long-term sovereign credit ratings to 'BBB' from 'BBB+' on Tuesday. The new rating remains investment grade and is two notches above "junk" status. The firm took a negative outlook, saying it could make another downgrade in 2013 or 2014.

Lower credit ratings can make it more expensive for the government to borrow money because it can spook bond investors.

S&P says Italy's economic output is falling and its economic prospects are getting worse after a decade of weakness. It now expects Italy's GDP to fall by 1.9 percent this year, worse than the 1.4 percent decline it forecast in March.

S&P said Italy has run budget surpluses for most of the last decade, but taxes on capital and labor are higher than tax levels on property and consumption and Italian labor has become expensive compared with other EU countries.

S&P said those problems are hurting the country's growth and economic competitiveness.

Last week, the International Monetary Fund pressed Italy to do more about "unacceptably high" unemployment, especially among young people and women, and urged it to bring back an unpopular property tax whose return could threaten the survival of Premier Enrico Letta's coalition government.