S&P Upgrades Italy’s Credit Rating, Citing Strong Position Amid Tariff Pressures

S&P Global Ratings has upgraded Italy’s unsolicited long-term sovereign credit rating to BBB+ with a stable outlook, reflecting the country’s resilience despite global economic uncertainty. Short-term ratings remain at A-2.

The upgrade comes even as concerns grow over the impact of U.S. tariffs on European goods. While the upcoming 10% U.S. tariff on European imports could shave off about 0.2% from eurozone GDP, S&P believes Italy is well-positioned to absorb the shock. The agency cited the country’s net external creditor position, which has improved significantly to 15% of GDP over the past five years, nearly reaching pre-pandemic levels.

Corporate and household balance sheets have also strengthened. With reduced borrowing in the private non-financial sector, Italian households now hold net assets exceeding five times the country’s GDP, contributing to economic stability.

Although shifts in U.S. demand are expected to affect trade, S&P notes that Italy’s top export partner—Germany—has boosted government spending to 20% of GDP, particularly in defense and infrastructure. This is expected to generate positive spillover effects across intra-European Union trade and similar initiatives in the region.

Italy’s public debt remains high at 129% of GDP (as of end-2024), but S&P anticipates stabilization starting in 2028, supported by Italy’s active participation in the Economic and Monetary Union (EMU). This involvement is expected to help mitigate the impact of credit vulnerabilities.

S&P also credits the European Central Bank (ECB) for maintaining credibility in managing inflation. The ECB’s ability to respond to external shocks with effective monetary policy reinforces the eurozone’s broader economic stability.

The agency indicated that Italy could see further rating upgrades if it continues to reduce its budget deficit or if economic reforms lead to sustained growth above 1%. On the other hand, a downgrade could follow if economic or fiscal conditions deteriorate significantly, especially if prolonged trade tensions with the U.S. weaken consumer and investor confidence.