Moody’s Investors Service has suggested that the Greek economy will record economic growth rates higher than the Eurozone average this year and in 2018, in a report released yesterday.
Moody's expects the euro area to grow by 1.3% in 2017 and 2018 with smaller countries such as Greece expected to grow more slowly but still exceed the euro area average. The euro area's largest economies -- Germany, France and Italy -- will continue to grow at well below 2% each year.
"Our outlook for sovereign creditworthiness in the euro area in 2017 is stable overall," said Sarah Carlson, a Moody's Senior Vice President and co-author of the report.
"Economic growth dynamics in the euro area in 2017-18 will be broadly credit neutral and debt metrics have stopped deteriorating for most, though not all, euro area sovereigns. However, rising political and policy risk in some euro area countries could undermine ongoing reform efforts."
A wide range of political parties has emerged in many euro area countries on both the right and the left of the political spectrum to challenge the established policy consensus. Moody's base case assumption is that few of these anti-consensus parties are likely to form governments, but most have the potential to materially influence the political debate by making it more politically costly for centrist parties to advocate increasingly unpopular economic or fiscal reforms. The 2017 election cycles in France, Germany, the Netherlands and perhaps Italy will reveal the extent of the support for these emerging parties and movements.
While it is unusual for changes in government to have material credit implications, the far-reaching nature and ubiquity of the political shifts under way means that the impact of the upcoming elections could be more significant from a credit perspective than is usually the case.
Although the rising political, and hence policy uncertainty, in some countries has not yet adversely affected the ratings outlook for the region, it could lead to far-reaching political changes that could challenge the governance and even the continuity of the euro area.
As things stand, Moody's thinks that the likelihood of further departures from the EU or euro area is very low. But unexpected electoral gains by parties with anti-EU or anti-euro policies, or other unanticipated events which Moody's thinks raise the probability of exits, would require a reappraisal of this risk.
