Ratings agency Moody’s Investors Service has downgraded Italy’s government bond rating two notches over concerns that the country is more likely to experience a further sharp increase in its funding costs or the loss of market access amid rising eurozone risks and deteriorated economic outlook.
Moody’s said in a statement that the risks Italy faces rose amid increasingly fragile market confidence, contagion risk from Greece and Spain, and signs of an eroding non-domestic investor base.
The firm noted the risk of a Greek exit from the eurozone had risen and Spain’s banking system will experience greater credit losses than anticipated.
Besides the external risks from the region, Italy also faces a deteriorated economy in the near term. Moody’s said both weaker growth and higher unemployment indicated a weakening economy, which created risks of failure to meet fiscal consolidation targets, pressuring the already shaky market confidence.
Moody’s was now expecting Italy’s gross domestic product growth to contract by 2 percent in 2012.
It was the second downgrade in five months for Italy. Moody’s downgraded the country, along with Spain and Portugal, in February.