Credit rating firm Fitch has upgraded Greece’s outlook to positive from stable, although it maintained the country’s rating at BB, two notches below investment grade
In a report released on Friday, Fitch estimated that the Greek economy will grow by 8.3% in 2021, much faster than the 4.3% forecast at the time of the ratings review last July, although growth in the final quarter was still hampered by the coronavirus pandemic. Fight against waves caused by virus variants. Before that, the country’s gross domestic product (GDP) had surpassed pre-pandemic levels.
Greek banks were a big reason for the upgrade, having “substantially reduced the level of non-performing loans … and enhanced their ability to provide credit to the real economy.”
On the positive side, Fitch expects the economic recovery to extend into 2022 and 2023, with GDP growing by 4.1% per annum in these years. In addition, the still heavily indebted country is expected to fully repay one of its creditors, the International Monetary Fund, in 2022.
On the downside, the deficit has fallen very slowly, from 10.1% in 2020 to 9.7% of GDP in 2021. Fitch noted that this is “due to the government’s continued pandemic-related support to the private sector, equivalent to €15.6 billion ($17.8 billion, or 8.7% of the 2021 GDP forecast). But the pandemic-related support measures The phase-out will help reduce the deficit to 4.1% and 2.9% in 2022 and 2023.
Fitch expects the current account deficit to remain high as demand growth accompanying the recovery boosts imports and offsets higher exports from rising exports and tourism.
Outlook upgrades are usually (but not always) credit upgrades within 12-18 months.
Greece hopes to raise its debt to investment grade by late 2022 or early 2023, the first time since 2010, when a financial crisis caused by excessive deficits and debt hit the country hard, forcing its creditors to implement years of austerity .
Fitch noted that “Greece’s per capita income far exceeds” the median level of the same investment-grade country, and “governance scores and human development indicators are among the best among their sub-investment-grade peers”. Still, Fitch said high debt levels and bad bank loans weighed on the country’s rating.