In light of ongoing compliance with the conditions of the European Stability Mechanism (ESM) program, reduced political risk and sustained growth of GDP, Fitch Ratings has upgraded Greece’s rating to B- from CCC. The rating carries an outlook of positive.
The economy of Greece is undergoing a gradual recovery. Indicators signal growing economic activity, though ESM program delays weighed on confidence and private-sector payments in the first quarter. With rising consumer and business confidence, the European Commission economic sentiment indicators reached a two-year high in July. Fitch expects real GDP growth of 1.6% and 2.1% in 2017 and 2018, respectively. Domestic demand should be boosted by a decline in unemployment, continued clearance of government arrears and increasing investments.
The successful completion of the second review of the ESM program has reduced the risk of a fall in confidence or an increase of government arrears with the private sector. Fitch expects that the third review of the adjustment program will result in no increase of instability and that the Eurogroup will grant significant debt relief to the country next year.
In Fitch’s view, an important development is the Eurogroup’s plan to connect debt relief measures to actual growth outcomes after the program period. This should increase confidence that government debt is on a sustainable path. European partners appear to be changing focus from strict fiscal targets to the restoration of medium-term GDP growth, Fitch said.
– Adam Fusco, associate editor