The House Moody’s did not change Greece’s credit rating, maintaining the current “Ba1” rating, with the result that the Greek debt remains below investment grade. At the same time, it kept the economic outlook unchanged (stable outlook).
The house says the rating is supported by a strong track record of reforms that have led to visible improvement in institutions and governance, stronger investment and a healthier banking sector.
Despite the expected large reduction, the debt-to-GDP ratio will remain too high. However, the favorable debt structure and large capital cushion mitigate the situation, he emphasizes.
Moody’s forecasts growth of 2.4% in 2024 and 2.3% in 2025, supported by domestic demand and exports, while inflation is expected to ease to around 2%.
It estimates that EU funds and private investment, together with continued reforms, will help lift potential growth and offset to some extent the negative effects of unfavorable demographics.
As it states, “the stable outlook balances deep structural improvements that could provide stronger credit metrics than Moody’s currently expects against structural challenges, which could weigh on Greece’s credit profile more than was currently expected.”
The biggest challenges for the economy include the large current account deficit. Furthermore, given the size and importance of sectors such as tourism and shipping, the economy is vulnerable to external shocks and further improvements in economic resilience by expanding the export base will take time.
According to Moody’s, upward pressure could emerge in a scenario of continuation of economic policies and commitment to fiscal consolidation, combined with successful implementation of remaining reforms, especially in the judicial system. This would lead to greater resilience to external shocks, a faster-than-expected improvement in fiscal strength, and addressing NPLs would support a higher rating.
In addition, as the house reports, a more rapid change in Greece’s economic structure that contributes to improving economic resilience would be credit positive. Further improvements in the banking sector, reducing profitability volatility and bringing asset quality and capitalization ratios closer to the euro area average, would also be credit positive.
According to Moody’s, downward pressures could arise if there is a reversal of the policy path seen in recent years. Even signs that past reforms are not delivering the boost to growth and fiscal accounts currently expected would have a negative impact, weighing on business sentiment and investment. An escalation of the geopolitical situation in Europe involving NATO will likely lead to downward pressure on the rating.
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