Italy: Finally agreement reached on budget deficit – Danske Bank

Analysts at Danske Bank note that the Italian government said last night that it has reached an agreement that the budget deficit will be 2.4% in 2019.

Key Quotes

“It is well above market consensus, which was probably around 2% or maybe even lower after the comments over the last week from FM Tria. It was also in the upper end of our own 2.0-2.4% range.”

“Importantly, it is also above the assumption used by Fitch when Italy was put on negative outlook. A one-notch downgrade by Fitch will now be difficult to avoid. Moody's also has a lower assumption and has Italy on 'negative watch', and could come out anytime (deadline end of October) with a potential downgrade.”

“2.4% is of course well below the important 3% EU limit. But few expected that Italy would dare to breach the 3% level. Hence, we should expect quite a negative opening for BTPs this morning.”