Greece’s credit ratings is “stable” and reflects a degree of confidence in the sustainability of public finances, after the shock to public finances and economic growth from the COVID-19 pandemic this year, according to Fitch.
Fitch highlighted that although the Greek GDP in 2019 made a surplus of 1.9%, because the coronavirus pandemic lowered economic activity, there will be a 7.5% GDP deficit this year.
“We estimate that deficit-increasing fiscal measures this year directly account for around 6% of GDP. We expect the deficit to fall back in 2021 and 2022, to 5.1% and 3.4%, respectively, although the pace of decline in the deficit is very uncertain,” Fitch reported.
“Moreover, the recent decision by the Council of State to rule in favour of pensioners who appealed against pension cuts after 2012 will affect future public finance outturns, and we have assumed an impact of 0.5% on deficit projections for each of 2021 and 2022 to take this into account,” the report explained.
Although 22% of the Greek GDP came from tourism in 2019, Fitch expects “the current account deficit to widen from 1.4% of GDP in 2019 to 3.4% of GDP (‘BB’ median forecast: 4.1%), and remain close to 2% of GDP in the following two years.”
Fitch rates categories ranges from ‘AAA’ to ‘D’ and placed Greece at ‘BB’.
“Fitch expects the global economy to perform in line with Fitch’s Global Economic Outlook (29 June 2020), which projects the eurozone to contract by -8% in 2020 before growing by 4.5% in 2021 and 2.8% in 2022. There is an unusually high level of uncertainty around the projections in the context of the ongoing pandemic, and risks are to the downside,” Fitch explained.
What could lead to a positive rating for Greece is a return to GDP growth and sustained low interest rates in the aftermath of the coronavirus pandemic, implementation of effective structural reforms and reduced risk of crystallisation of banking sector contingent liabilities on the sovereign balanced sheet with progress on asset quality improvement by the systemic banks.
