Italy, the Eurozone’s third-largest economy, entered a recession last year, but exchange traded funds, such as the iShares MSCI Italy Capped ETF (NYSEArca: EWI) and the Franklin FTSE Italy ETF (NYSEArca: FLIY) are trading higher this year.

Italy’s economy dipped into a recession in the fourth quarter of 2018, and political volatility may persist as analysts argued that the governing coalition of the anti-immigration League party and the anti-establishment 5 Star Movement may not survive the year, the Wall Street Journal reports.

While Italian stocks are performing well this year, some analysts and market observers believe Italy still has plenty of risks for investors to consider. Fitch Ratings recently tagged Italy with BBB sovereign credit rating with a negative outlook.

“Italy’s ‘BBB’ rating and Negative Outlook reflect the extremely high level of general government debt and the absence of structural fiscal adjustment, relatively high net external debt, still-weak banking sector asset quality, very low trend GDP growth, policy risk and uncertainty arising from the current political dynamic, and associated downside risks to our public debt projections,” said the ratings agency.

Investigating Italy Markets

Italian markets took a hit last year after the new populist government butted heads with Brussels, enacting budget-deficit plans that broke the European Union’s rules on fiscal discipline. Investor concerns, though, eased somewhat after Rome, the Eurozone’s biggest government borrower, helped avoid the bloc’s disciplinary proceedings.

However, sluggish GDP growth cannot be ignored.

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