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Fitch Ratings has downgraded Russia’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘BBB-‘ from ‘BBB’. The issue ratings on Russia’s senior unsecured foreign and local currency bonds have also been downgraded to ‘BBB-‘ from ‘BBB’. The Outlooks on the Long-term IDRs are Negative. The Country Ceiling has been lowered to ‘BBB-‘from ‘BBB’. The Short-term foreign currency IDR has been affirmed at ‘F3’.

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OVERVIEW

  • We have revised our average real and nominal GDP growth projections for Italy over the 2014-2017 forecast horizon down to 0.5% and 1.2%, respectively, from 1.0% and 1.9%, as persistently low inflation and a difficult business environment continue to weigh on Italy’s economic prospects.
  • In our opinion, Italy’s weak real and nominal economic prospects have undermined public debt dynamics more than we forecast in our June 6, 2014 report. In absolute terms, we now estimate Italian general government debt will be €2.256 trillion by year-end 2017, which is €80 billion higher (or 4.9% of estimated 2014 GDP) than we forecast in June.
  • Under our criteria, such a large increase in debt, combined with consistently low growth and eroded competitiveness, are not commensurate with a ‘BBB’ rating.
  • We are therefore lowering our long- and short-term sovereign credit ratings on Italy to ‘BBB-/A-3’ from ‘BBB/A-2’.
  • The stable outlook reflects our expectation that the government will gradually implement comprehensive and potentially growth-enhancing structural and budgetary reforms, and that household balance sheets will remain strong enough to absorb further increases in public debt. We also assume the European Central Bank’s monetary policy stance will continue to support a normalization of inflation in Italy and its key eurozone trading partners.

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OVERVIEW

  • We are affirming our ‘BBB/A-2’ long- and short-term sovereign credit ratings on the Republic of Italy.
  • The affirmation reflects our view of Italy’s wealthy and diversified economy, as well as our expectation that the government will make some progress on important structural and fiscal reforms.
  • The outlook on the long-term rating remains negative, reflecting our view of risks to the public sector balance sheet from weak real and nominal growth prospects.

RATING ACTION

On June 6, 2014, Standard & Poor’s Ratings Services affirmed its unsolicited ‘BBB’ long-term and ‘A-2’ short-term sovereign credit ratings on the Republic of Italy. The outlook on the long-term rating remains negative.

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OVERVIEW

  • We have revised our average 2014-2016 real GDP growth projections for Spain upward to 1.6% from 1.2% reflecting the effects of labor and other structural reforms.
  • We are therefore raising our long- and short-term sovereign credit ratings on Spain to ‘BBB/A-2′ from ‘BBB-/A-3′.
  • The outlook is stable, reflecting our current view that risks to the ratings on Spain will remain balanced over the next two years.

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London 25 April 2014

Fitch Ratings has upgraded Spain’s Long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘BBB+’ from ‘BBB’ The issue ratings on Spain’s senior unsecured foreign and local currency bonds have also been upgraded to ‘BBB+’ from ‘BBB’. The Outlooks on the Long-term IDRs are Stable. The Country Ceiling was raised to ‘AA+’ from ‘AA’ and the Short-term foreign currency IDR affirmed at ‘F2’.

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  • In our view, heightened geopolitical risk and the prospect of U.S. and EU economic sanctions following Russia’s incorporation of Crimea could reduce the flow of potential investment, trigger rising capital outflows, and further weaken Russia’s already deteriorating economic performance.
  • We are therefore revising the outlook on our long-term sovereign credit ratings on Russia to negative from stable.
  • We are affirming our ‘BBB/A-2’ foreign currency and ‘BBB+/A-2’ local currency ratings on the Russian Federation.

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