Credit rating firm Fitch revised Greece’s outlook to positive from stable, although it kept the country’s rating at BB, two notches below investment grade
In a report released on Friday, Fitch estimates that the Greek economy grew by 8.3% in 2021, much faster than the 4.3% projected in its previous rating review last July, although growth has even been impacted last quarter due to the coronavirus pandemic. waves fueled by virus variants. Prior to that, the country’s gross domestic product (GDP) had surpassed pre-pandemic levels.
Greek banks are one of the main reasons for the upgrade, “by sharply reducing the level of non-performing loans…and improving their ability to provide credit to the real economy.”
On the positive side, Fitch expects the economic recovery to extend through 2022 and 2023, with GDP growing at 4.1% in each of those 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 negative side, the deficit is shrinking very slowly, falling to 9.7% of GDP in 2021 from 10.1% in 2020. Fitch notes that this was “due to the continued pandemic-related support provided by the government to the private sector, amounting to €15.6 billion ($17.8 billion or 8.7% of GDP expected in 2021). But the phasing out of pandemic support measures will help reduce the deficit to 4.1% in 2022 and 2.9% in 2023.
Fitch expects the current account deficit to remain high as the growth in demand that accompanies the recovery will fuel imports and offset export growth and rising tourism revenues.
An outlook upgrade is usually, but not always, followed by a credit upgrade within 12 to 18 months.
Greece hopes to see its debt upgraded to investment grade by the end of 2022 or early 2023 for the first time since 2010, when the financial crisis caused by excessive deficits and debt hit the country hard, requiring years of austerity imposed by its creditors.
Fitch notes that “Greece has a high per capita income that far exceeds” the median level of countries in the same investment category and that “governance scores and human development indicators are among the highest of its peers.” sub-investment quality”. Still, still-high debt levels and bad bank loans are dragging the country’s rating down, according to Fitch.