S&P cuts Italy’s credit rating by one notch

Standard & Poor’s Ratings Services has downgraded Italy’s credit rating by one notch, saying it sees weakening economic growth prospects for the nation and higher-than-expected levels of government debt.

S&P said Monday it cut Italy’s long- and short-term sovereign credit ratings to “A/A-1” from “A+/A-1+. It said the main factors contributing to the downgrade are Italy’s political and debt issues.

The ratings firm has a negative outlook on Italy’s ratings. It says it expects that policy differences will likely limit Italy’s ability to respond effectively to its debt crisis.

Italy is grappling with an outsized debt load, and its government is under pressure to enact austerity measures to rein in spending.

But S&P says weaker economic growth is likely to limit the effectiveness of Italy’s fiscal consolidation program.

“Italy’s economic growth prospects are weakening, and we expect that Italy’s fragile governing coalition and policy differences within parliament will continue to limit the government’s ability to respond decisively to domestic and external macroeconomic challenges,” S&P said in a statement.

Italy follows Spain, Ireland, Portugal, Cyprus and Greece as euro-region countries having a credit rating cut this year.

S&P also said it lowered its outlook for Italy’s annual average growth to 0.7% for 2011 to 2014, from a prior projection of 1.3%.

“We believe the reduced pace of Italy’s economic activity to date will make the government’s revised fiscal targets difficult to achieve,” the statement said.