Italy regains investor confidence as economic fundamentals improve, QNB says

Doha, Qatar - Italy is making a comeback in European financial markets, according to Qatar National Bank's (QNB) latest weekly report. The bank attributes the resurgence to strong economic fundamentals, fiscal responsibility, and political stability, indicating a shift from being a source of concern to a symbol of investor confidence.

Three key factors behind Italy's turnaround are outlined by QNB. First, the nation's budget deficit has significantly decreased, falling from 7.1% of GDP in 2023 to 3.4% in 2024 and 3.1% in 2025. The government projects it will continue to shrink to 2.9% in 2026, marking the first time it will meet the European Union's 3% deficit threshold since 2019.

Second, the yield spread between Italian and German 10-year government bonds has narrowed considerably. From 251 basis points in September 2022, the spread has reduced to just 59 basis points by January 2026, its lowest level since 2008.

Third, credit rating agencies have recognized Italy's progress. Fitch upgraded Italy to BBB+ in September 2025, while Moody's raised its rating to Baa2 in November.

Despite these positive developments, QNB warns that maintaining fiscal discipline is crucial. The budget deficit is projected to increase to 3.4% of GDP in 2027 to cover higher defense and energy spending, ahead of the general elections scheduled for that year.

The bank also highlights Italy's improving external position, noting a turnaround in its current account. While it was a deficit of about 3% of GDP in 2011, it has since shifted to a surplus of 1.2% in 2025. For Italy to continue attracting investor confidence and strengthen its position in European financial markets, sustaining these gains will be essential.