As analysts had already discounted for a long time, the international rating agency Standard and Poor’s, late on Friday night (after the close of Wall Street), upgraded the outlook of the Greek debt to positive from stable, keeping the rating unchanged “BBB-“. This move brings closer to another upgrade for the assessment of the Greek economy, and the international house describes in its report the “recipe” in order to achieve this goal.
It is recalled that in October 2023, Standard & Poor’s had fed Greece with positive news by upgrading Greece’s credit rating to “BBB-“, with a stable outlook (from “BB+”). With this move, he became the first of the so-called “big houses” to give the coveted investment grade to the Greek economy.
The international house emphasizes that the Greek authorities have a wide range of structural reforms and face long-term problems. Special mention is made of the growth in our country, which exceeded the eurozone average, “a trend that we expect to continue” as the rating agency underlines, pointing out at the same time that “the very high ratio of net debt to GDP of Greece that was in force before is decreasing and it should continue to decline.”
Despite the weakness shown by some macroeconomic data, growth is above the eurozone average, and this trend is expected to continue.
At the same time, very high debt is declining and will continue to do so if expectations of fiscal discipline and relatively high nominal GDP growth are confirmed.
The cost of borrowing
The international house emphasizes in particular that the cost of servicing Greece’s central government debt remains very low at around 1.34% at the end of 2023. However, this is likely to start rising following the trend of international markets. The weighted average cost of new borrowing soared to 3.7% in 2023 from 1.3% in 2022. However, the CDTI swaps program (which broadly hedges exposure to interest rate rises) along with the extremely long average duration of Greece’s debt (19.3 years at the end of 2023), are significant mitigations.
The positive outlook
S&P emphasizes that the positive outlook reflects the expectation that fiscal discipline will continue to reduce debt, while growth will continue to exceed the eurozone average.
In fact, it emphasizes that it could upgrade the rating within the next 24 months if the debt-to-GDP ratio declines further to approach the debt of countries with a corresponding rating. The Greek authorities could achieve this with a combination of competitiveness-enhancing economic reforms, full deployment of Recovery Fund funds and sustainable primary surpluses over a long period of time.
International threats
The house points out, however, that Greece remains exposed to changes in the global economy and geopolitical risks. These include a possible slowdown that could affect the important tourism and shipping sectors, but also a sudden new spike in energy prices. These developments could slow down the improved dynamics of Greek debt.
The next appointments with the houses
Following this, S&P’s next assessment is scheduled for October 18. Moody’s is the only one that has not yet given it an investment grade rating. The American bank in mid-March maintained the credit rating for Greece at Ba1, one notch below investment grade, and now renews its appointment with the Greek economy on September 13.
After S&P, Fitch now takes over on May 31, which rates Greece BBB- with a positive outlook.
Followed by Scope Ratings on 12 July and DBRS on 6 September and Fitch on 22 November.
The rating cycle for 2024 will be closed by Scope Ratings on December 6
The circle that opened in the summer of 2023
Greece has made a huge effort to leave behind the more than ten-year crisis and in the summer of 2023 it got the investment grade from Scope Ratings (August 4). This was followed by the upgrade from DBRS in September, with S&P giving its long-awaited upgrade in October. Fitch became the fourth house, among those recognized by the European Central Bank, to classify Greek bonds as investment grade on December 2.
Greece with the investment grade is now a very good investment destination since the so-called “country risk” has been reduced, with the benefits gradually extending to the real economy, initially to the largest companies and secondarily to the smaller ones, now achieving better lending conditions from markets.
Now the next goal for the government will be to further improve the creditworthiness of the Greek economy which will lead to a further de-escalation of borrowing costs.
SOURCE: ot.gr
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