Fitch: Greece’s rating unchanged at ‘BB’, stable outlook

LAST UPDATE: 00.40

The American rating agency Fitch kept Greece’s credit rating unchanged at “BB”, while keeping the outlook at “positive”, according to the report published late Friday evening.

The main assessment factors:

Positive outlook: Greece has a high per capita income that far exceeds the median of “BB” and “BBB” rated countries. Its governance and human development scores are among the highest of its sub-investment grade peers. These advantages contrast with still very high levels of non-performing loans (NPLs) and very large public and external debt stocks, the house notes. The positive outlook reflects the continued expected reduction in public sector debt, amid still low average borrowing costs, despite a sharp rise in government bond yields this year. Greek banks, the report emphasizes, have made significant progress in improving asset quality, significantly reducing the level of non-NPLs in the banking sector.

High public debt and mitigating factors: Public debt as a percentage of GDP declined to 193.3% by the end of 2021 and is projected to decline further to 171.6% by 2024, driven by improving primary balances and favorable growth dynamics and interest costs. Despite this reduction, the debt ratio in 2024 is still projected to be among the highest of Fitch-rated countries and more than three times the average of countries in the “BB” category. At the same time, there are mitigating factors that support debt sustainability. Greece’s cash reserve is significant (expected to reach 14.5% of GDP at the end of the year). The favorable nature of the majority of Greek public debt means that debt servicing costs are low and repayment schedules manageable.

Treasury yields have risen sharply this year, with the yield on the 10-year note rising from around 1.3% at the end of 2021 to an average of around 4% in June 2022. However, the interest-to-income ratio is expected to rise modestly ( to 6% in 2024) and remain well below the median of countries in the “BB” tier (projected at 10% in 2024). The average duration of the Greek debt is one of the longest of any other country, around 20 years. In addition, the debt is mostly fixed rate, limiting the impact of increases in market interest rates.

Deficit reduction, fiscal support: The government deficit fell to 7.4% of GDP in 2021 from 10.2% in 2020, a faster decline than the house had expected in its last review (when it expected a deficit of 9.7%). Fitch now expects the deficit to narrow further this year, to 4.55 of GDP, but at a slower pace than previously estimated. Deficit reduction will be slowed by a deteriorating macroeconomic outlook and fiscal support to cushion the impact of rising energy prices, which the government says will add about 1.4% of projected GDP to deficit in 2022 (about 2/3 of the unspecified support will be recovered from the emissions trading scheme and a windfall tax on utilities). The deficit will decline at a faster pace over the next two years, under the scenario that fiscal support for energy prices is set at 1.8% of GDP by 2024 (median estimate for “BB” countries: 3%) .

War in Ukraine worsens macroeconomic outlook: The Greek economy expanded by 8.3% in real terms in 2021, Fitch notes, adding: However, the macroeconomic outlook has worsened significantly in recent months, with the Russian invasion of Ukraine worsening rising energy prices and affecting business and consumer confidence, and high inflation affecting real incomes and consumption dynamics. Greece’s direct trade ties (including tourism) between Russia and Ukraine are small. However, Greece depends on Russia for around 40% of its total natural gas imports and is vulnerable to further price increases and potential energy supply disruptions.

Other factors will support the economic outlook, the house emphasizes. The uptake of Greece’s National Recovery and Resilience Plan funds will accelerate this year, boosting government investment and aggregate demand, while tourism indicators point to further sector recovery. Fitch has however revised down its forecast for real GDP growth this year to 3.5%, from 4.1% in its January assessment, as well as its forecast for 2023 (3.2% vs. 4% previously). . For 2024, the house expects a further, mild slowdown in economic growth to 2.8%.

Next reviews:

After Fitch, the next scheduled credit ratings for Greece are: Moody’s and DBRS verdict on September 16, Fitch’s third rating on October 7 and S&P’s second rating on October 21.

Source: Capital

You may also like