Fitch is poised to upgrade Italy's credit rating from BBB to a higher grade, potentially BBB+ or A-, driven by recent improvements in the country's fiscal and political stability.

Despite these positive signs, Italy still faces challenges such as high debt levels, low employment, sluggish economic growth, and stagnant productivity.

The recent upgrade prospects follow Fitch's previous positive outlook from a year ago, and similar upgrades of Spain and Portugal suggest a favorable environment for Italy's rating.

Italy's fiscal situation has been strengthening, supported by a 4% increase in state sector tax revenues from January to July, indicating ongoing fiscal consolidation.

This fiscal health is further evidenced by strong tax revenues, which rose by approximately 4% in the first seven months of 2025 compared to the previous year.

Market indicators reflect investor confidence, with foreign investment in Italian bonds reaching its highest level since June 2019 and the spread between Italy's 10-year bonds and German bonds narrowing to a 16-year low.

The narrowing of bond spreads, including the Italy-France spread falling below one basis point, signals improving market sentiment and reduced perceived risk.

Italy's 2024 budget deficit was 3.4% of GDP, below the government’s 3.8% target, and is expected to fall below the EU's 3% threshold ahead of schedule, supported by strong tax revenues.

This fiscal consolidation, with a deficit below EU targets, underpins Fitch's positive outlook and the potential upgrade of Italy's credit rating.

Prime Minister Giorgia Meloni's government has maintained political stability since 2022, contrasting with recent political turmoil in France that led to a Fitch downgrade.

Market data, including credit default swaps, already reflect expectations of Italy's credit rating improving to single A territory, indicating strong market confidence in Italy's fiscal trajectory.