Dagong cuts Italy's sovereign credit rating to BBB

Chinese rating agency Dagong Global Rating Co. on Friday downgraded the local and foreign currency sovereign credit rating of Italy from A- to BBB with a negative outlook. The downgrade was a response to inevitable fiscal austerity and structural reforms that will negatively affect the growth of the debt-laden country, Dagong said. Meanwhile, an external downturn and a worsening financing environment will force Italy to increasingly rely on the European Central Bank and bailout mechanisms to avoid a debt default, thus undermining its solvency, it said. While forecasting a negative 0.7-percent growth in 2012, the rating agency added that Italy's economy cannot maintain stable and positive growth in the mid-term, warning that its long-term growth will be threatened if it fails to address issues such as its aging population and regional economic gap. The country's goals of cutting government debt to 0.1 percent by 2013 and creating a fiscal surplus by 2014 will also be hard to achieve, Dagong said, citing rising interest payment pressure and inadequate cuts in social welfare spending. The rating agency predicted that Italy's government deficit ratio will hit 4.6 percent and 4.1 percent in 2012 and 2013, respectively, and is unlikely to dip below 3 percent in the mid-term.