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Stable credit outlook Greece She kept Fitch Ratings In the national evaluation of the program.
US ratings agency Fitch kept Greece’s credit rating stable, while also keeping its outlook stable at BBB-, despite analysts’ forecasts to the contrary.
As the House noted, Greece’s rating reflects levels of per capita income and governance indicators that are well above the median of BBB investment-grade countries, as well as its credibility based on membership in the European Union and the Eurozone.
Instead, the debt crisis has left a legacy of high stocks of public and external debt, high and falling unemployment, low medium-term growth potential, and a persistently weak banking sector.
Fitch’s Focus
Fitch specifically highlighted in its report Fixed primary surplus.
The report projects that the overall deficit will continue to decline to 0.8% of GDP by 2025, with the primary surplus averaging 2.3% in 2024-2025 (1.9% in 2023). Recent performance has been boosted by stronger revenue and cost control.
Fitch also sees Fiscal prudence The government’s medium-term budget plan is based on conservative revenue assumptions, at a time when the authorities are pushing ahead with ambitious tax reforms (including reducing tax evasion by the self-employed and promoting electronic transactions). Although the new European fiscal framework sets some limits on additional spending, successful revenue growth can create fiscal space.
about Public Debt Fitch expects that the combination of strong fiscal performance, stable interest costs and moderate nominal growth will continue to drive the public debt-to-GDP ratio down to 147.3% by 2025 (161.9% in 2023) and below 140% by 2028. This is a significant adjustment (the ratio reached 207% in 2020), but debt remains well above the average for BBB-rated countries (55%) and eurozone countries (89.9%). The country’s good debt profile significantly reduces risks, while large cash reserves (EUR 35 billion in the first quarter of 2024) serve as a buffer that can be used to further reduce debt levels.
Given the “legacy” of the past, there are some uncertainties, although Fitch says they will not have a negative impact on the improvement of Greece’s public financial management performance. Contingent liabilities are around €29 billion (12% of GDP, including €17 billion of “Hercules”), and Eurostat may decide next year to reclassify deferred interest on EFSF loans, which could increase debt by €12 billion (5.6%). The House estimates that this will not affect the overall financing needs or expectations of continued public debt deleveraging.
Everything related to her dynamics developFitch expects real GDP growth to accelerate to 2.3% in 2024 and 2.4% in 2025 (2% in 2023), well above the euro area average (1.1%), helping the country achieve a degree of income convergence with advanced euro area countries. Growth will be driven by real wage growth, continued employment growth and stable investment. Fitch expects recovery fund-related investments to accelerate, with grant absorption rising from 1% of GDP in 2023 to a peak in 2026, which will have a positive impact on private investment and consumption.
Moreover, Greece’s recovery has been accompanied by a steady improvement in the economy. labour marketThe unemployment rate is at a 15-year low (10.2% in March), employment is increasing, and the working population is showing moderate growth. Fitch forecasts that the unemployment rate will gradually decline further over the next two years, but the risk of labor shortages is rising, especially in labor-intensive industries such as tourism and construction.
The authorities are focusing on implementing a series of reforms to increase the labor force, but upward pressure on wages is likely to increase. They point out that wage dynamics are currently relatively weak (up 4%), but there is a risk of a more lasting impact on inflation and could affect the country’s competitiveness in the medium term.
The deficit has shrunk rapidly, driven by lower commodity prices and strong growth in services exports. Current account balance By 2023, at 6.3% of GDP, it will still be the highest in the euro area. The rating agency expects a more gradual reduction in the deficit in 2024-2025, partly due to an expected recovery in external demand for goods and continued strong performance in the tourism sector (revenues reached a record €18 billion in 2023).
Fixed capital inflow Foreign Direct Investment Capital flows will also strengthen the external position. Net external debt will reach 120.6% of GDP in 2023, well above the ‘BBB’ median (3%), although it is at a decade low and will continue to decline gradually over the medium term.
despite this, Bank of Greece They maintain high liquidity and strong profitability, supported by rising interest rates, completion of restructuring and balance sheet consolidation. The total equity ratio rises to 18.8% at the end of 2023, slightly below the Eurozone average of 19.7%. The consolidated NPL ratio declines further to 6.2% by the end of 2023 (from 8.7% at the end of 2022) and is expected to decline further in 2024-2025, due to a combination of organic actions and small portfolio sales.
Finally, Greece ESG Relevance Scoring “5” and “5(+)” represent political stability and rights, as well as rule of law, institutional and regulatory quality, and control of corruption, respectively. These scores reflect the high weighting of the World Bank Governance Indicators (WBGI) in Fitch’s country rating model. Greece’s WBGI ranking of 62.7 reflects a recent history of peaceful political transitions, moderate levels of rights to participate in the political process, moderate levels of institutional capacity, mature rule of law, and moderate levels of corruption.
Downside risks and upside opportunities
According to the rating agency, factors that could, individually or collectively, lead to a downgrade include:
- Public Finance: General government debt/GDP is on an upward trend again due to structural fiscal easing, prolonged weak economic growth, or the realization of large contingent liabilities.
- Macroeconomics: Severe adverse shocks would affect Greece’s medium-term growth potential and worsen its external competitiveness.
On the other hand, factors that can individually or collectively lead to positive action/escalation of the assessment are divided into:
- Public Finances: General government debt/GDP continues to decline sharply, driven by medium-term fiscal consolidation.
- Macroeconomic: Improving medium-term growth potential and performance, for example by increasing investment and/or implementing structural reforms.
article Fitch: Greece’s outlook remains stable – rating unchanged Published on News IT .
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