/RATINGS: Goldman: Stable Sovereign Rating is Our Baseline

Goldman Sachs note “following the unchanged Fitch rating (BBB, Outlook: Stable) on 12 May, we also expect Moody's to reiterate its rating (Baa3, Outlook: Negative) on 19 May. However, we see two-sided risks around this baseline. The strength in Q123 GDP data and the upcoming support from the European Recovery and Resilience Facility (RF) could motivate an upgrade of the outlook from negative to stable. Instead, some recent data weakness, especially in industrial production, and the lingering uncertainty regarding the revision of the National Recovery Plan (PNRR) could motivate a more cautious attitude and, although this is the most unlikely scenario in our view, even trigger a rating downgrade.”

• “Given the relatively cautious attitude of Italian fiscal policy, we do not expect market participants to raise concerns regarding Italian debt and the risk on growth unless disappointing evidence regarding the implementation of the RF were to become available. However, a rating downgrade would quickly refocus market attention and produce a sizeable widening of BTP-Bund spread. The next report regarding the progress of the PNRR is expected around the end of H123.”