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Dagong downgrades Italy's sovereign credit rating with negative outlook

12-08-2011 09:52 BJT

BEIJING, Dec. 7 (Xinhua) -- Italy has lost its A- credit rating with Dagong Global Rating Co. Ltd., the first domestic rating agency in China, due to the country's sluggish economic growth and difficulties of narrowing fiscal deficit in its medium-term objective.

Dagong Global on Wednesday downgraded the local and foreign currency long-term sovereign credit rating of Italy by one level to BBB from the previous A- with "negative" outlook.

The Chinese rating agency said that Italy's economy lacks growth momentum due to inadequate external demand. It said the stability and liquidity of the country's banking sector also face increasingly severe challenges amid the rising pressure of capital replenishment.

Meanwhile, it said the government's debt repayment capability is undermined as it grows more reliant on bond-purchase from the European Central Bank.

Dagong said that the Italian economy is expected to drop by 0.6 percent this year. It also predicted that the economy would further decline by 0.7 percent in 2012.

The Chinese rating agency estimated the fiscal deficit rate of Italy's central government and local governments will reach 5 percent in 2011. The situation will see no significant improvement during the next two years despite the country's efforts to narrow the deficit, Dagong predicted.

The Italian government's deficit rate will drop to 4.6 percent in 2012 and 4.1 percent in 2013, the agency said.

Dagong added that austerity measures and structural reform are inevitable for Italy, processes that will also harm economic growth in the long run.

Founded in 1994, Dagong Global is a pioneer in creating credit rating standards on industries, regions and sovereignties in China, and is also leading the credit rating market in corporate bonds, financial bonds and structured financing bonds.

Editor:Zhang Hao |Source: Xinhua

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