Italy’s government bond ratings have been downgraded to A2 from Aa2 with a ‘negative’ outlook by rating agency Moody’s.

The move follows Standard & Poor’s cut of Italy’s credit rating last month from A+ to A.

Moody’s cited the ‘fragile market sentiment surrounding euro area sovereigns with high levels of debt’, ‘low productivity and labour and product market rigidities’ and ‘uncertainty around fiscal consolidation targets’ as reasons for the downgrade.

Baring Asset Management’s director of research, fixed income and currency Nigel Sillis said Italy’s fiscal position remains more favourable than the likes of Greece, Portugal and Ireland due to relatively low levels of private indebtedness and the €60bn austerity programme agreed by parliament.

However, he said the task ahead for the Italian government “ought not to be underestimated.”

“Current plans require measures of institutional reform, revenue expansion and cost cutting to an extent never before executed within this economy – there are sure to be both successes and failures along the way and the prospect remains for a period of heightened volatility across all Italian risk assets.”

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