WASHITERAN, YJC. -- Moody's affirmed Italy's government ratings and negative outlook Friday after the country's president named a prime minister in a bid to an end a two-month political impasse.
The ratings agency said it was maintaining the government's Baa2 ratings and keeping the negative outlook, citing "the elevated risk that the Italian sovereign might lose investor confidence and, ultimately, access to private debt markets as a result of the political stalemate."
Moody's affirmed the Baa2 rating because of the "strong fundamentals that support the sovereign's debt sustainability" and the government's primary surplus.
"Both are currently supporting factors for Italy's debt sustainability, despite the weak outlook for nominal GDP growth over the medium term," it said in a statement.
The negative outlook, indicating the rating likely would be downgraded, stemmed not only from weak economic growth, tight credit and potential contagion from eurozone partners, but also because of the political deadlock, Moody's said.
"The prospects for an improvement in the medium-term growth outlook are limited given that further progress on structural reforms has been undermined by the political paralysis induced by the elections of 24-25 February," it said.
"Despite the ongoing efforts to form a government, without firm consensus and a clear mandate, the prospects of further economic reform look poor. In its absence, the growth of the Italian economy will remain constrained by its impaired competitiveness."
The Moody's statement came as Italy's prime minister-designate Enrico Letta scrambled to put together a coalition in the eurozone's third-largest economy.
The government is expected to be sworn in on Saturday, Italian media reported, citing sources in Letta's staff.
President Giorgio Napolitano, who nominated Letta on Wednesday, has threatened to resign if no cabinet is formed.