MOODY'S EXPECTS ITALY TO WEATHER ECONOMIC CRISIS

MOODY'S EXPECTS ITALY TO WEATHER ECONOMIC CRISIS

(ANSA) - Rome, November 3 - Moody's Investors Service said on Tuesday that it was keeping its rating outlook for Italy at stable because it was convinced that the country could adjust to the challenges posed by the global economic downturn.

In a new report - entitled: Italy's Adjustment Capacity is Tested by Global Crisis, but Rating Outlook Remains Stable - the ratings agency observed that ''the deterioration expected in the government's debt metrics is considered within the scope of the country's adjustment capacity in the medium to long term''.

Because Italy's economic growth has been relatively slim for many years, reflecting the structural weakness of the economy and its ageing population, ''it will be difficult for Italy to achieve growth at even this slow pace,'' said Alexander Kockerbeck, Vice President-Senior Credit Officer in the rating agency's Sovereign Risk Group.

Whereas growth in a number of developed economies depended on unsustainable debt-fuelled spending by the private sector, private debt is not a problem for Italy, Kockerback observed, ''where the private sector has low debt and a healthy savings buffer''.

''Furthermore, a globally less exposed banking system reduces the risk of large shifts from private to public debt as has occurred throughout the industrialised world,'' he added.

Because lower total country debt and high net worth of all economic agents will assist the government in stabilising its own debt, albeit at a high level, Moody's does not expect a medium-to-long-term deterioration in the three characteristics that determine whether debt is sustainable: affordability, reversibility or finance-ability,'' the report said.

'Although the government's balance sheet will be under pressure due to the recession, prevailing low interest rates mean that Italy's debt affordability has not worsened,'' the report added.

According to the report, Moody's is convinced that ''the Italian government's very high adjustment capacity will enable it to cope with the additional fiscal pressure caused by higher deficits and interest rates, eventually allowing the country to reverse its unfavourable debt trajectory''.

''Such capacity, as well as the economy's ability to live with higher public debt, has already been demonstrated over more than a decade,'' the report recalled.

''Improvements in the structure of Italian public debt management also point to very high debt finance-ability, especially as Moody's does not foresee dramatic shifts in general government borrowing requirements,'' the report said.

''The elongation of the government's debt structure that took place in the last decade means that Italy's debt affordability would worsen only slowly, even if interest rates were to rise substantially. Thus it is likely that the government's interest burden would still remain below the high levels experienced in the 1990s,'' the report observed.

Moody's said it would continue to monitor the situation and take appropriate rating action as and when needed.

Italy is rated by Moody's at Aa2 with a stable outlook.