Greece ‘is in a virtuous cycle’

Moody’s anticipates a credit rating upgrade for Greece in a report of its investment service, and although it still places the country three notches below investment grade, this positive reading by the strictest of the rating agencies has its value.

The next rating decisions are by DBRS on September 8, Moody’s on September 15, S&P on October 20 and Fitch on December 1.

The report covers Greece, as well as Portugal and Cyprus, and the agency concludes that there are “upward credit pressures” for all three, thanks to the economic, fiscal and banking reforms that have taken place and are ongoing.

Moody’s sees a virtuous cycle, starting from the investments of the Recovery Fund, combined with the reforms imposed by the latter, resulting in enhanced growth. Higher growth, combined with fiscal discipline, in turn leads to debt reduction. Finally, this improved fiscal outlook reduces banking risk and strong banks in turn support dynamic growth.

On the other hand, the analysis also highlights the weaknesses that limit the dynamics of the upgrade: These are mainly the aging population and climate change. The first puts limitations on GDP growth, especially for Greece and Portugal, as pointed out. The second will not only negatively affect tourism, but will also require huge costs for measures to adapt to the new climate conditions and strengthen resilience against extreme heat, drought and fires. The agency’s analysts estimate that among the three countries, Greece will benefit the most from the Recovery Fund in terms of boosting annual GDP growth and potential growth. They note that in their previous estimate, with conservative calculations, they predicted an annual increase of Greek GDP by 1 percentage point until 2026 and potential GDP by 0.4 of a point until 2030.

Although there has been a general slowdown in requests for payments from the Recovery Fund this year compared to last year, they note, Greece and to a lesser extent Portugal are quite advanced in their requests.

link: https://www.ekathimerini.com/economy/1218997/greece-is-in-a-virtuous-cycle/