Renzi Resignation Boosts Italy’s Economic Risks Amid Political Tumult in Europe

The resignation of Prime Minister Matteo Renzi after voters in Italy rejected his proposed constitutional reforms have increased risks for the country’s economy, Fitch Ratings said in a release Tuesday that also addressed political upheaval elsewhere in Europe.

WASHINGTON (Sputnik) – On Monday, a day after announcing he would step down, Renzi was asked by President Sergio Mattarella to delay his resignation until Italy's parliament approves a national budget, expected this week.

"The rejection of constitutional reforms in the referendum on 4 December and the resignation of Prime Minister Matteo Renzi have increased downside risks in Italy, for which Fitch revised the Outlook on the sovereign's 'BBB+' ratings to Negative in October," the ratings firm said. "Key challenges include forming a stable government, revising the electoral law and recapitalising the banking sector, while reducing government debt/GDP and reviving growth prospects."

In the weekend referendum, voters handed Renzi a surprising rebuke in rejecting his plans for revamping Italy's constitution, upending national politics and causing the euro to decline on currency markets.

In the same release, Fitch said uncertainty over how the United Kingdom extricates itself from the European Union as a result of the country's May vote on the matter will dominate economic prospects for both the country and Europe overall in 2017. The ratings firm reiterated its view of Brexit as a substantial negative shock to the UK economy and public finances.

"Fitch believes it is unlikely the UK will remain in the EU single market, given its apparent prioritisation of sovereignty and controlling immigration," the firm predicted.

Additionally, it forecast that the collective economy of the 19 countries that use the euro will grow 1.4 percent in 2017, down slightly from this year's 1.6 percent across the eurozone.