In a report issued Friday, Fitch estimates that the Greek economy grew 8.3% in 2021, much faster than the 4.3% forecast in its previous rating review last July, although growth still took a hit in the last quarter as a result of the coronavirus pandemic waves fueled by virus variants. Before that, the country’s gross domestic product (GDP) had exceeded pre-pandemic levels.
Greek banks are a big reason for the upgrade, “sharply reducing the level of non-performing loans... and enhancing their ability to provide credit to the real economy.”
Further on the positive side, Fitch expects the economic recovery to extend to 2022 and 2023, with GDP expanding 4.1% in each of these years. Also, 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 declining 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 euros ($17.8 billion or 8.7% of forecast 2021 GDP). But the phasing out of pandemic-related support measures will help lower the deficit to 4.1% in 2022 and 2.9% in 2023.
Fitch expects the current account deficit to remain high as the demand growth that goes along with the recovery will fuel imports and offset export growth and higher income from tourism.
An upgrade in outlook is usually, but not always, followed by a credit upgrade within 12-18 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, necessitating years of austerity imposed by its creditors.
Fitch notes that “Greece has high income per capita that far exceeds” the median level of countries in the same investment grade and that “governance scores and human development indicators are among the highest of sub-investment grade peers.” Nonetheless, the still very high debt levels and bad bank loans drag the country’s rating down, Fitch says.