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S&P Downgrades Italy Credit Rating

Standard & Poor's rating agency described Italian Prime Minister Silvio Berlusconi's governing coalition as "fragile."

The ratings agency Standard & Poor's has downgraded Italy's credit rating by one level -- from "A+" to "A" -- in what's being seen as another setback for the euro zone as it attempts to deal with the European Union debt crisis.

In a statement, S&P said Italy's rating could be further reduced, as the country's outlook was judged to be "negative."

The statement said S&P believes that Italy has "weakening economic growth prospects."

It said the "fragile governing coalition" of Prime Minister Silvio Berlusconi and differences between lawmakers in parliament would likely continue to limit the ability of the euro zone's third-largest economy to respond decisively to economic challenges.

The statement cited low employment rates, an inefficient public sector and modest foreign investment as hampering Italian growth.

The downgrade means Italy must pay higher interest rates to investors who extend new credit, in order to compensate for increased risk that the government may not be able to repay loans.

Italian Prime Minister Silvio Berlusconi today said that S & P's decision to downgrade its ratings on Italy "did not reflect reality" and that it appears to have been "clouded by political considerations."

Italian stocks plunged today in response to the report.

In August, S&P downgraded the credit rating of the U.S. federal government from "AAA" to "AA+" over Washington's high debt and gridlock among Congressional lawmakers over how to address America's fiscal challenges.

IMF: Global Economy Entering 'Dangerous' Phase

In related news, the International Monetary Fund (IMF) warns that the global economy has entered a "dangerous new phase," citing the eurozone debt crisis and the fragile economic position of the United States as the major risks to world economic growth.

In its World Economic Outlook bi-annual report, the IMF says issues surrounding the U.S. and eurozone economies could drag them into recession.

The IMF forecasts that global GDP will expand "at an anaemic pace" of 1.5 percent in 2011.

It predicts that global growth will shrink to 4 percent in 2012 from 5 percent in 2010 on factors such as "major financial turbulence in the eurozone."

The IMF report also voices concerns about the U.S. economic recovery and the chance it might "suffer further blows" including a weak housing market and worsening financial conditions.

compiled from agency reports