Rating action

Scope Ratings GmbH (Scope) has today affirmed the Italian Republic’s (Italy) long-term issuer and senior unsecured debt ratings at BBB+, in both local and foreign currency, and revised the Outlooks to Positive, from Stable. Scope has also affirmed Italy’s short-term issuer ratings at S-2 in both local and foreign currency, and revised the Outlooks to Positive, from Stable.

The revision of the outlook reflects:

1. Scope’s expectation of a sustained improvement in public finances and the continuation of reform implementation supported by government stability and the compliance with the new EU governance fiscal framework. Italy’s headline fiscal deficit overperformed in 2024 and is also likely to fall more than initially expected this year. After declining to 3.4% of GDP in 2024, the deficit is set to decline further to 3.0% in 2025, likely enabling Italy to exit the excessive deficit procedure in 2026, one year earlier than previously expected.
    
2. The improved resilience of the Italian economy, reflecting a stronger labour market, a sound banking system and a favourable net external position. Despite multiple shocks, including the energy crisis, weaker manufacturing activity in Europe and recent U.S. trade protectionism measures, Italy’s economy is demonstrating notable resilience. Real GDP stood 6.5% above pre-covid levels in Q2 2025, slightly outperforming the euro area average (+6.2%). Moreover, Italy continues to benefit from substantial remaining resources under the National Recovery and Resilience Plan (NRRP), which are expected to remain supportive for growth. These factors reduce the risks stemming from an elevated public debt of around 135% of GDP and high gross financing needs of around 20-25% of GDP in the coming years.

Going forward, Scope will monitor developments related to the country’s political stability as well as the government’s continued commitment to the reform efforts and fiscal discipline in the contexts of structural spending pressures from defense and the welfare system. This includes the possible revision of the electoral law, which could have important implications for policy continuity beyond the electoral cycle, with the next general elections scheduled no later than fall 2027.

The main credit challenges reflect i) high government debt and funding needs, which are expected to remain elevated over the long term; ii) weak longer-run economic growth performance; and iii) an ageing and declining working-age population weighing on productivity and fiscal sustainability.

For the updated rating report, click here.

Key rating drivers

Prolonged government stability and adherence to comply with the new EU fiscal framework bolsters Italy’s fiscal outlook. Since 2022, Italy’s government has shown remarkable stability that contrasts with the historical short duration of previous administrations. By striking the balance between supporting the economy and steadily improving the headline budget deficit, the government led by Georgia Meloni has maintained its solid parliamentary majority, while limiting the rise in spending and improving the performance of tax collection. Moreover, the government has demonstrated its compliance to the multi-year net expenditure path agreed with EU authorities, which in Scope’s view is an important anchor for continued deficit reduction.

Italy’s headline fiscal deficit overperformed in 2024 and is likely to fall more than initially expected this year. After declining to 3.4% of GDP in 2024, instead of the projected 4.3%, the deficit is set to decline further to 3.0% in 2025, lower than the 3.3% expected in April by the government¹. This will likely enable Italy to exit the excessive deficit procedure in 2026, one year earlier than previously expected.

Strong government commitment to improve the budget and primary balance. By controlling current spending, while maintaining support for public investments, the government aims to reduce the fiscal deficit to 2.3% of GDP by 2028². Nevertheless, defense expenditures are expected to rise, likely up to 0.5% of GDP by 2028, which, if not offset through other measures, could weigh on the deficit trajectory. Scope thus projects a more gradual decline in the deficit to 2.5% of GDP by 2028, assuming some fiscal slippage as the next elections approach as well as due to a gradual rise in defense spending. Nevertheless, Scope expects the primary surplus, a key determinant of debt sustainability, to continue to rise going forward to 1.9% by 2030 from 0.9% projected in 2024, one of the highest levels in the euro area. This compares favourably with Spain and Portugal, with the IMF projecting their primary surplus at around 0.6% and 0.7% in 2030, respectively.

Scope also views positively the government’s strengthened medium-term fiscal planning under the EU’s reformed fiscal framework. The NextGenerationEU (NGEU) programme has strengthened coordination between national and EU-level investment strategies, anchoring fiscal policy in multi-year expenditure paths linked to growth-enhancing projects. Together, these factors support a more medium-term, rules-based fiscal policy environment, reducing volatility in deficit dynamics and supporting debt sustainability.

The credible and predictable fiscal stance also limits the rise in interest costs and supports market sentiment. Since the second half of 2023, the share of international investors holding Italy’s debt has gradually increased, offsetting Eurosystem divestments and absorbing a large amount of net issuances. This improvement in market sentiment is also reflected in the reduction in the 10-year government bond spread with Germany’s Bund, which has declined to below 100bps since June 2025 – a significant fall after the peak recorded at around 250bps in the fall of 2022.

Moreover, Scope notes that the average cost of new issuances has remained below the average effective interest costs since the beginning of the year, while the average maturity has stayed at around 7 years, further signalling continued favourable market conditions. Despite the sizeable debt to roll over in the coming years, Scope expects only a gradual rise in the interest bill to 4.3% of GDP (or 9.2% of revenue) by 2030. Italy’s funding needs will also likely benefit from less expensive EU funding, including RRF resources until 2026 and SAFE resources, lower deficits, supporting the expectation that Italy’s treasury could slight shift to issue new debt towards cheaper tenures. A gradual increase in interest cost, as well as better primary surplus dynamic, should help stabilise the debt-to-GDP ratio at around 136% of GDP by 2030, broadly in line with today’s level of 135% of GDP.

Reinforced economic resilience, supported by improved fundamentals, external buffers, and absorption of EU funds. Scope notes that Italy’s economic fundamentals have improved in recent years. Labour market performance remains solid with employment at record levels. The banking sector is profitable and well capitalised and maintains sound credit quality. At the same time, despite the energy crisis and a weak external environment, the current account surplus remains supportive at 1.1% of GDP in 2024. The IMF estimates that Italy’s current account surplus will rise gradually toward 2.0% of GDP by 2030. Moreover, Italy’s net international investment position at 10.8% of GDP as Q2 2025³ remains an important buffer against shocks. All these elements contributed to the decision of the European Commission to assess Italy’s imbalances as no longer excessive⁴. Meanwhile, robust public and private investments have led to a renewed increase in the stock of capital. Continued capital accumulation will be an important driver to support growth in the medium term as the workforce shrinks.

The country has recorded solid economic growth during H1 2025, despite heightened uncertainty and trade tensions. Nevertheless, Scope remains cautious on Italy’s economic outlook, with GDP growth expanding by 0.5% in 2025 before slightly improving to 0.7% in 2026. Uncertainty related to trade protectionism measures, alongside the prolonged crisis of the European manufacturing sector, are likely to remain a drag on growth. Private consumptions and investments are set to be the main drivers, as households’ purchasing power gradually recovers alongside continued growth in private investment. After contributing to growth over the past few years, exports are likely to register a more moderate performance going forward. However, Scope expects Italy’s exporters to adapt to a changing and challenging environment, also because Italy’s high quality of goods exports makes them less price sensitive. These factors are set to mitigate the overall impact of heightened tariffs going forward.

Italy’s government has made significant progress with the implementation of the NRRP, being among the top performers both in terms of milestones and targets fulfilled and disbursements received. Scope expects an acceleration in the pace of execution as EUR 86bn have been spent so far, out of the EUR 194bn total envelope. This means that there is still a sizeable amount of resources to be spent, which are expected to continue to support growth over coming years.

Moreover, progress with the justice system and the public sector reforms have been advancing, with disposition times reducing and digitalisation improving tax collection. Public investment has also increased exceeding historical averages, rising to 3.6% of GDP as of Q2 2025, up from 2.3% of GDP in 2019. The sound growth in public investment supports Italy’s infrastructure and subsequently its productivity, which should have a positive, structural impact on Italy’s growth outlook beyond 2026.

Rating challenges:

First, despite the sharp decline of public debt from the peak of 154.4% of GDP in 2020, the debt-to-GDP ratio remains very high at around 135%, limiting the country’s fiscal space to absorb future shocks. Scope expects the debt to remain broadly stable over coming years until 2030. This balances Scope’s growth expectation of around 0.7% over the 2025-30 period and the sustained primary balance of around 1.4%. Scope expects the cash impact from past housing-renovations tax credits to continue to weigh on the stock flow adjustment until 2026, which will also be driven by the still uncertain implementation of the privatisation plan. Moreover, the sizable share of public debt to be rolled over each year increase its interest rate sensitivity, negatively affecting the snow-ball effect, as GDP growth remains quite moderate.

Second, the Italian economy has a poor track record in the performance of total factor productivity, averaging just 0.4% annual growth during the pre-Covid decade compared to 0.8% for the euro area, only slightly increasing since 2019. Similarly, real labour productivity per hour worked increased by only 0.3% between 2000 and 2024, compared with 18.3% in the euro area, according to Eurostat. Persistent constraints include infrastructure gaps, still inefficient public administration, low investment in both R&D and human capital and a large amount of small firms with limited capacity to scale. Moreover, while the employment rate reached near record high in Q2 2025 (67.4%), it remains around 8pps below that of the euro area (75.7%), according to Eurostat, with participation particularly weak among women. These challenges highlight the importance of the full implementation of the NRRP, which aims to address Italy’s productivity and labour market challenges, including reform efforts to stimulate competition in the country.

Finally, Italy’s demographic developments are among the worst in Europe, with the rapidly ageing and declining working population having major economic and fiscal consequences. By 2050, the European Commission, projects Italy’s working-age population (aged 20-64) to decrease by about 15% to around 29.4m⁵ and the number of pensioners to increase by 19% to around 17.5m compared with 2022. This will cause the old-age dependency ratio (ratio people aged over 65 to those aged 20-64) to peak at around 66% by 2050 from around 41% in 2022, between that of Spain (64%) and Portugal (69%), but well above the euro area average of 56%. However, Scope notes that ageing costs estimates from the EC have slightly improved compared with the past report. For example, total pension costs are now expected to peak at 17.1% of GDP in 2040 compared with the previous estimate of 17.8%⁶. This points out how temporary measures to make retirement requirements less stringent have not had a material impact on the overall profile. Nevertheless, this trajectory limits Italy’s growth potential and poses a challenge to the consolidation of public finances over the medium to long term.

Rating-change drivers

The Positive Outlook reflects Scope’s view that the risks to the ratings over the next 12 to 18 months are tilted to the upside.

Upside scenarios for the ratings and Outlooks are (individually or collectively):

1. Sustained policy continuity ensuring fiscal prudence and reform momentum are maintained over coming years; and/or
    
2. Stronger medium-term economic resilience due to an effective implementation of public investments, structural reforms, and improved external and banking sector resilience.

Downside scenarios for the ratings and Outlooks are (individually or collectively):

1. Weaker support from European institutions, increasing refinancing risk on Italy’s high public debt stock;
    
2. A deterioration in the fiscal outlook, resulting in a significantly slower fiscal consolidation, or a material rise in debt-to-GDP ratio; and/or
    
3. A weaker medium-term growth outlook due to delays or setbacks in public investment and/or reforms under the country’s recovery and resilience programme.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘a-’ for Italy. Under Scope’s methodology, the indicative rating receives 1) a one-notch positive adjustment from the methodological reserve-currency adjustment; and 2) no negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘a’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of Italy’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope identified the following QS relative credit weaknesses for Italy: 1) growth potential and outlook; 2) fiscal policy framework; 3) long-term debt trajectory; 4) social factors; and 5) governance factors. Conversely, Scope did not identify any QS relative credit strengths for Italy. On aggregate, the QS generates a two-notch negative adjustment for Italy’s credit ratings, resulting in final BBB+ long-term ratings. A rating committee has discussed and confirmed these results.

Environment, social and governance (ESG) factors

Scope explicitly factors in ESG issues in its ratings process vis-à-vis the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weighting under the quantitative model (SQM) and 20% weight under the methodology’s qualitative overlay (QS).

For environmental factors, Italy scores above-average for emissions per unit of GDP, but receives a low score for natural disaster risk, reflecting its exposure to earthquakes, floods, prolonged droughts and wildfires in certain regions. However, the country has set ambitious goals in its National Energy and Climate Plan⁷, including reducing GHG emissions by 43.7% relative to 2005 levels by 2030, achieving a 39% share of its energy consumption by 2030 from renewable sources, as well as improving its energy efficiency. Meeting these targets will require significant investment, underscoring the need to implement the national recovery plan which allocates 34.3% of its resources to green policies.

For social factors, Italy faces challenges from its ageing population, as reflected by the old-age dependency ratio set to exceed 60% by 2050, one of the highest levels in the EU. This will adversely impact economic growth and pressure public finances. In addition, income inequality, while modest under an international comparison, is high relative to the euro area. Labour force participation is the lowest in the euro area, at around 66.9% of the working-age population in 2024, which, however, also reflects a high rate of undeclared work. Finally, Italy’s labour force inactivity results in a high share of NEETs (people not in Education, Employment or Trainings), at 15.2% (15-29 years old) as of 2024, which highlights the need for additional measures to address youth unemployment to preserve social stability and ensure economic sustainability.

For governance factors, Scope uses a composite index of five World Bank Worldwide Governance Indicators, according to which Italy scores slightly below its euro area peers, with no negative adjustment under the political-risk assessment. Moreover, under the qualitative scorecard, Scope assesses ‘institutional and political risks’ as a relative weakness given its historic highly fragmented political environment, which frequently leads to episodes of political instability. Italy’s record of political instability and paralysis – with 66 governments over the past 75 years – represents a rating constraint. This has limited the ability to implement a credible reform agenda. However, Scope notes how the current government, supported by a solid and ample majority, has been able to gradually make progress on the NRRP reforms, even though appetite for measures aiming at opening market to competition, seems still low. The next general elections and the extent to which current policies are maintained will be critical to inform Scope’s governance assessment going forward.

Rating committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Rating driver references
1. DFP, April 2025
2. DBP, 2026, October 2025
3. Balance of Payments, October 2025
4. COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Italy
5. The 2024 Ageing Report
6. The 2021 Ageing Report
7. National energy and climate plans

Methodology
The methodology used for these Credit Ratings and Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and Outlooks is (Sovereign Quantitative Model Version 4.1), available in Scope Ratings’ list of models, published under scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation        YES
With access to internal documents                                     YES
With access to management                                              YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity,
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Carlo Capuano, Executive Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings and Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings and Outlooks were last updated on 12 July 2024.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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