The upgrade of the Greek economy to BBB with stable prospects from BBB- with positive prospects was carried out by the house credit rating Scope Ratings.
The Scope Rating house was the first, recognized by the European Central Bank, to give Greece investment grade in August 2023 and is now the first to upgrade its rating within the investment grade.
A reduction in public debt, improved resilience of the banking system and a stronger growth trend were the main drivers that led to the upgrade, according to the German house.
“The still high public debt and structural financial weaknesses remain limiting factors of the credit rating,” he adds.
The upgrade to BBB reflects Scope’s expectation of a continued decline in Greece’s general government debt ratio over the coming years.
This reduction is driven by favorable debt dynamics, alongside stronger-than-expected primary fiscal surpluses and the consequent further reduction in the overall fiscal deficit.
The resilience of the banking system is bolstered by progress in reducing non-performing loans (NPLs), the privatization of systemic banks and the gradual amortization of deferred tax credits (DTCs) on bank balance sheets.
In addition, the adoption of structural reforms and investment, the reduction of macroeconomic imbalances and more stable support from European institutions are strengthening macroeconomic sustainability and the growth trend, Scope reports.
The first factor in the upgrade of Greece’s long-term ratings by one notch to BBB reflects the continued reduction of Greece’s public debt. This is mainly due to favorable public debt dynamics, as supported by strengthened medium-term nominal growth prospects, the still low average interest cost of debt and the government’s commitment to fiscal prudence.
The general government debt ratio has fallen significantly from its high level in the pandemic crisis (212.6% of GDP as of 2020) and is estimated to stand at 155.3% at the end of 2024, a significant reduction of 57 percentage points units, while falling short of the pre-pandemic level (185.5% at the end of 2019).
The robust economic recovery since the second quarter of 2020 combined with recently increased inflation and reduced fiscal deficits has led to a significant reduction in public debt and its drivers appear sustainable enough to sustain continued debt reduction, although at a gradually more moderate pace.
The debt ratio is projected to fall to 145% of GDP by the end of 2025, before falling further to 132% by the end of 2029. If this forecast materializes, it could represent Greece’s lowest debt ratio since the start of the Greek crisis in the first quarter of 2010.
The house’s forecasts for Greece’s debt have been boosted by continued fiscal outperformance, as the government is expected to exceed the estimate for a 2.4% primary surplus in 2024 made in the 2025 Budget.
Scope has updated its medium-term assumptions for the primary fiscal balance and expects the government to average primary surpluses of 2.75% of GDP over 2024-27, higher than the previous assumption from July 2024 for primary surpluses of 2.4-2.5% in the same period.
The continued focus on fiscal prudence gives Scope increased confidence in the government’s ability to achieve and maintain high primary surplus targets ahead of the next general election, barring unforeseen crises. This is due to the increased dominance in policy-making after Greece’s exit from economic adjustment programs and enhanced supervision. Primary surpluses are consistent with narrower fiscal deficits, which are projected to average 0.7% of GDP over 2024-29.
Scope’s debt forecasts are based on the assumption of GDP growth of 2.2% this year and next and 1.6% on average from 2026 to 2029.
In addition, Scope assumes inflation of 2.5%, based on the GDP deflation index, over the period 2024-29, compared to an average decline in inflation of -0.4% over the period 2012-2021.
Kostis Hatzidakis: It is a success for all Greeks
Today’s upgrade of the credit rating of the Greek economy by Scope is a success for all Greeks and is of particular importance for three reasons, said the Minister of National Economy and Finance Kostis Hatzidakis.
-First, it is the first upgrade of the country within the investment grade, after the financial crisis. The Greek economy is rising higher and approaching the advanced economies.
-Secondly, it takes place in a period of international turmoil and while powerful countries are faced with the downgrading of their creditworthiness.
-Thirdly, it confirms the correctness of the government’s fiscal and economic policy in general, a few days before the discussion of the 2025 budget.
The Scope report highlights the reduction of public debt by 57 percentage points of GDP, from 212.6% in 2020 to 155.3% this year, lower than pre-pandemic levels, while in 2029 it estimates it will be further reduced to 132% , lower than the start of the financial crisis in 2010. The house still notes the outperformance of the state budget, strengthening the resilience of the banking system by limiting bad loans and the growth dynamics of the economy supported by structural reforms and Community funding.
The return of the Greek economy to normality signals better financing conditions for the Public and Private sectors, stimulation of investments, new jobs and better wages. This is the path that the government is following and will continue to follow, away from the sirens of populism. And this success is the success of all Greeks.
The article Surprise upgrade of the Greek economy by Scope Ratings to BBB with stable outlook was published on NewsIT .