Fitch: Upgrade – a surprise for the Greek economy

Our country is now one unit away from investment grade as Fitch Ratings has given a vote of confidence to the Greek economy by upgrading its credit rating. The US rating agency had rated Greece’s credit rating at BB, two notches lower than what is called investment grade. With a review to BB+ with a stable outlook, the rating agency cuts the distance from the most desirable investment grade.

It should be noted that in the past three years, our country’s credit rating has been upgraded a total of twelve times. Yesterday, pending the rating agency’s decision, the yield on the 10-year note fluctuated at 4.16% from 4.21% that closed the day before on the HDAT.

What prompted the upgrade?

As the analysts say, they raise their forecasts regarding the size of the debt and the growth of the Greek economy in the period 2022-2024. They pointed out that “this is due to the significant recovery of the Greek economy that was recorded in addition to the decrease in public debt.” They also forecast a decline in the general government deficit to 1.8% of GDP in 2024 from 3.8% in 2022. “This means a significant improvement in the balance of 2.5 percentage points and another 0.9% in 2024,” the report says.

In particular, the fiscal policies, the reduced risks in the banking sector, the reforms implemented, the easing of inflation, together with the public debt profile (stable financing), led analysts to decide to upgrade the credit rating of the Greek economy.

New estimates of public debt indicate that it will reach 160.6% of GDP in 2024. This represents a decrease of about 10% compared to the previous estimate by Fitch analysts. And as far as the banking sector is concerned, Fitch Ratings estimates that the local banking system has turned the page. In particular, he notes, non-performing loans fell to 9.7% in the third quarter of 2022, down from 10%. “This is a significant drop in percentages not recorded since 2009,” the rating agency asserts.

Analysts indicate in updating their estimates that the gross domestic product will grow by 0.9% in 2023 and 2.3% in 2024, and this is due to the resilience of the economy in the country, as well as the decline in energy prices in Europe. Fitch describes the Recovery Fund as a “landmark” that brings in significant investment. Inflation is expected to decline from 9.3% in 2022 to 5% in 2023 and to 1.5% in 2024.

Analysts see that the risks for the banks are limited and they have largely cleaned up their balance sheets and “see” a period of growth. Although household borrowing remains at low levels, overall financing of the private sector accelerated from the second quarter of 2022 with businesses being financially supported by the banking system. Meanwhile, unemployment is declining and the government’s family support measures have had an impact. However, the increase in real estate prices is expected to put more pressure on those who have borrowed.

tI said the previous report

In its previous report last October, Fitch Ratings predicted a steady decline in the public debt-to-GDP ratio until 2024. As estimated by Fitch, the debt ratio will drop to 175.4% by the end of 2022, below the level it was at before the pandemic and from 193.3% at the end of the year. 2021. The debt ratio will then decrease to 174.4%, before reaching 170.4% at the end of 2024, as the budget returns to a primary surplus. However, the debt ratio in 2024 is still expected to be among the highest rated by Fitch Ratings and more than 3 times the average “BB” sovereign.

Societe Generale estimates

Earlier this month, Societe Generale reported that investment grade is possible until April 21, and estimates that S&P can offer the required upgrade. The French bank expects Greece to continue to improve fiscally and post record surpluses from 2023 to 2026 with debt-to-GDP falling to 147%, catching up with Italy by 2027.

Strong FDI inflows have boosted Greece’s economic recovery and funds from the EU’s NGEU program will continue to support economic growth. The house notes that “75% of the total debt consists of low-cost loans, mainly from central banks in the euro system. Outperformance and high inflation are expected to significantly reduce debt.”

Also mentioned is the banking sector and the government’s “Heracles” securitization program, which “helped banks reduce their non-performing loans with a government guarantee. Despite the risk of an EU-wide recession, Greece appears to be continuing to grow and we expect it to soon regain investment grade,” he added. says the French bank.