“The more expansive fiscal stance in the stress scenario delivers a temporary lift to growth in early 2019, before uncertainty and the resulting rapid and deep fiscal consolidation pulls back growth before finally tipping Italy into a modest recession,” said Markit.
Of concern is the heavy schedule of debt redemption Italy faces over the next several years.
“The stress scenario assumes higher sovereign debt funding costs, which will receive additional traction from the strong likelihood that the main rating agencies will downgrade Italy’s long-term credit worthiness. More elevated sovereign borrowing costs in the stress scenario are ill-timed with Italy facing a heavy schedule of sovereign debt redemptions in 2019-20,” according to Markit.
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