By Gavin Jones and Sara Rossi

ROME (Reuters) – Investors will nervously await a review of Italy’s ratings on Friday, although analysts see little risk that Moody’s (NYSE:) will downgrade the country’s debt to junk status, a move that could Which can shock the markets of Europe and beyond.

Moody’s has given Italy a Baa3 rating, just one notch above non-investment grade, and Rome’s outlook has been negative since August 2002. It will issue its decision sometime after 10 pm local time (2100 GMT).

Analysts say the downgrade would not only send Italy’s bond yields rising and sink its banks’ stocks, but also hit the debt of other peripheral euro zone countries and possibly weigh on the euro.

The closely watched gap between yields on Italian 10-year BTP bonds and the less risky German Bund can be expected to widen to 2.5 percentage points (250 basis points) from about 175 basis points on Thursday.

Italian debt would then find itself “on a slippery slope that could turn into more turmoil if the market does not get reassurance from elsewhere,” ING said in a note to clients on Tuesday.

However, analysts say the dramatic impact of the rating downgrade is a major reason the agency is likely to stay away, despite the fact that Italy’s economic and public finance prospects are anything but rosy.

Italian gross domestic product stabilized in the third quarter compared with the previous three months after a 0.4% decline between April and June, and the government’s tax-cut 2024 budget significantly loosened its fiscal stance.

The European Commission estimated on Wednesday that Italy’s debt, proportionally the second largest in the euro zone, will rise modestly from an estimated 140% of national output this year to 141% in 2025.

Three down, one to go

Nonetheless, Rome has already emerged unscathed from three other reviews by S&P Global, DBRS and Fitch in recent weeks, all of which made no changes to the country’s ratings or outlook.

Italian bond yields have fallen last month, boosted by expectations of an end to the European Central Bank’s interest rate hikes and benign decisions taken so far by ratings firms.

The BTP-Bund spread has declined by more than 30 basis points from a recent peak of 209 basis points on October 9.

However, Moody’s, which last week cut its outlook on US sovereign debt to negative, is the lowest-rated agency on Italy and the only one with a negative outlook.

Several banks have issued notes this week ahead of Friday’s review, and although they all highlight the serious consequences of a downgrade, none consider it likely.

Barclays described it as a “tail risk event” and UniCredit (BIT:) said it also saw a “slight possibility” the agency would raise Italy’s outlook to neutral.

Some analysts have said that although Italy’s growth prospects remain weak, they are still better than when Moody’s changed the outlook to negative 15 months ago amid a government collapse and energy crisis.