Fitch: Upgraded the Greek economy to BB+ – One step below investment grade

In the upgrade of Greece’s credit rating, to the rank of “BB+” with a stable outlook (from “BB”), the credit rating agency announced last Friday night Fitch.

This is a tier one step below the investment tier, a development welcomed by Finance Minister Christos Staikouras, speaking of “confirmation” of “the national goal of reaching the investment tier within 2023 – with multiple benefits for society and the economy – is possible”

In a statement, he cites improved financial results and reduced risks for the banking sector as the main reasons for the upgrade.

As he states in his announcement, expects better results and fiscal deficit and public debt projections in 2022-2024, thanks to stronger nominal growth, better budget execution and a more favorable debt service structure.

The optimistic predictions

In particular, it projects a further reduction in the general government deficit to 1.8% of GDP in 2024 from 3.8% estimated for 2022, partly due to the optimization of temporary support measures. This implies an improvement in the primary balance of 2.5 percentage points to a surplus of 0.9% in 2024 and a balanced position in 2023. There is, Fitch notes, some uncertainty about fiscal policies after the election, but risks are mitigated by the broad commitment for fiscal prudence and recent performance in this area.

For public debt, which is estimated to have declined by a record 24.5 percentage points to 170% of GDP in 2022, the house expects it to continue to decline at a more limited pace over the medium term, mainly due to high primary surpluses, to drop to 160.6% in 2024.

For the banking sector, it notes that significant progress continues to be made in reducing non-performing loans (NPLs), with the domestic NPL ratio at 9.7% in Q3 2022, falling below 10% for the first time since 2009, peaking with the securitizations under the “Hercules” plan and the broad-based recovery.

Fitch expects further improvement in bank assets, which will be supported by limited new inflows (NPLs) as banks complete their outstanding non-organic actions.

Fitch forecasts a growth rate of 0.9% for the Greek economy this year and 2.3% for 2024, revising its estimates for the better from the last assessment in October, as the balance of risks has improved, particularly due to the recent reduction in energy prices and limited prospects for rationing energy distribution in Europe.

It also notes that “the authorities continue to make progress on their reform agenda, which is linked in part to milestones in the Recovery and Resilience Fund, which, combined with the final absorption year of the NSRF 2014-2020 resources, will provide a strong investment boost ».

For inflation, Fitch expects a steady slowdown from 9.3% last year to 5% this year and 1.5% in 2024, in line with lower energy and other raw material prices as well as base effects. Core inflation is also expected to decline, albeit at a more limited pace.

On wages, it notes that in the third quarter of 2022 they increased by 7.3% year-on-year for the entire economy, the highest rate since 2010, while job vacancies from the first quarter to the third quarter of 2022 were the most in a decade.

“Positive development”

The upgrade of Greece’s credit rating “confirms that the national goal of reaching investment grade within 2023 – with multiple benefits for society and the economy – is achievable,” Finance Minister Christos said in a press release released by his services. Staikouras.

Mr. Staikouras also pointed out in his announcement that Fitch is “the fifth rating agency and third among those eligible by the European Central Bank that places the country just one ‘stair’ before the investment grade” and that “this is the 12th upgrade of the Greek economy in the last 3.5 years, despite successive external crises”

He spoke of a “positive development” which “constitutes yet another fruit – and, at the same time, certification – of the Government’s responsible, economically efficient and socially fair economic policy, the visionary publishing strategy, the maintenance of cash reserves at safe levels, the implementation of structural changes, the improvement of the composition of the GDP through the significant increase of investments and exports, the drastic reduction of ‘red’ loans in the portfolios of the banks, the reduction of unemployment and the forward-looking utilization of European resources, primarily from the Recovery and Resilience Fund ».

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