Ratings agency Fitch cut its outlook for Italy on Friday, saying weak growth, high debt and the uncertain outcome of a planned referendum posed risks to the euro zone's third-largest economy.
Fitch said political uncertainty ahead of the vote on constitutional reform which could decide Prime Minister Matteo Renzi's future had increased since its last review, with polls now suggesting its outcome is too close to call.
The agency left unchanged Italy's BBB+ rating, but said downside risks had increased, noting that Renzi has indicated he could resign in the event of a "no" vote.
"Even in the event of a 'yes' vote, Italy would face elections by May 2018, with populist and Euroskeptic parties currently performing well in opinion polls," Fitch said.
Potentially voter-pleasing budget measures that Renzi unveiled last week include Rome's latest upward revision to the deficit target, continuing a "pattern of slippage against fiscal targets since 2013", Fitch said.
The budget risks setting up a tussle with the European Commission, whose rules require governments to make progress every year towards balancing their books or achieving a surplus.