While the European Central Bank’s decision to loosen its monetary policy is a positive for Eurozone economies, Italian markets and related exchange traded fund still face growth concerns, with Standard & Poor’s ratings firm affirming a negative outlook for the country.
The iShares MSCI Italy Capped ETF (NYSEArca: EWI) was up 1.2% Friday. EWI has increased 15.9% year-to-date. [Deutsche Crafting Italy Hedged Currency ETF]
S&P warns that there is a one-in-three chance the country’s rating will be lowered next year from its current long-term BBB rating, two levels above speculative grade, reports Lorenzo Totaro for Bloomberg.
“The ratings are constrained by our assessment that economic growth prospects remain weak,” S&P said in the article. “Italy’s modest growth prospects reflect only tentative progress by the past three governments in reforming Italy’s domestic labor and product markets, which we regard as less flexible than those of Italy’s key trading partners.”
Prime Minister Matteo Renzi’s government is tackling a $2.9 trillion deficit, or 133.6% of 2014 GDP. The administration is seeking to cut spending and help fund tax cuts for low-income workers.
Italy’s government estimates that the economy will expand 0.8% this year, despite contracting 0.1% in the first quarter. Meanwhile, the S&P expects GDP growth to average 0.9% between 2014 and 2016.