Italy regains investor confidence as economic fundamentals improve, QNB says

Résumé détaillé

Italy is gradually restoring its standing in European financial markets, moving from a source of concern to one of growing investor ...

Doha, Qatar: Italy is gradually restoring its standing in European financial markets, moving from a source of concern to one of growing investor confidence, supported by stronger economic fundamentals, fiscal discipline and political stability, Qatar National Bank (QNB) said in its latest weekly report.

The bank said Italian government bond yields are expected to remain below levels recorded during previous periods of market turmoil, although global repricing of sovereign risks has widened yield spreads in recent weeks.

QNB identified three key factors behind Italy's recovery: improved public finances, an unusually stable political environment and stronger private-sector and external balance sheets.

Italy's budget deficit fell from 7.1% of gross domestic product (GDP) in 2023 to 3.4% in 2024 and 3.1% in 2025. The government expects it to decline further to 2.9% in 2026, bringing it within the European Union's 3% threshold for the first time since 2019.

The report noted that the yield spread between Italian and German 10-year government bonds narrowed from 251 basis points in September 2022 to 59 basis points by January 2026, its lowest level since 2008.

Credit rating agencies have also recognized the improvement, with Fitch upgrading Italy to BBB+ in September 2025 and Moody's raising its rating to Baa2 in November.

However, QNB warned that maintaining fiscal discipline remains a key challenge, particularly as the budget deficit is expected to rise to 3.4% of GDP in 2027 to accommodate higher defense and energy spending, ahead of general elections scheduled for later that year.

The bank also highlighted the improvement in Italy's external position, noting that its current account shifted from a deficit of around 3% of GDP in 2011 to a surplus of 1.2% in 2025.

QNB said sustaining these gains will be essential for Italy to maintain investor confidence and strengthen its position in European financial markets.

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