Fitch: Vaccination Acceleration and Recovery Facility Upgrade Greece’s Outlook

The return of the debt to GDP ratio to a downward trajectory following the coronavirus shock, the improvement of the medium-term growth prospects after the pandemic, and the recent progress in the improvement of the quality of the banks’ assets are leading to the upgrade of Greece’s creditworthiness, according to a new Fitch report.

In anticipation of the next Greek ratings report by Fitch on July 16 and after the upgrade of S&P, which raises expectations for moves by other rating agencies, analysts confirm their forecasts for growth of 3% this year and 7.6% for 2022.

As the agency notes, the current assessment of Greece, BB with stable prospects, reflects the relatively high per capita income and the high “scores” of governance in the relevant Fitch list.

This contrasts with the weak growth potential, an extremely high level of non-performing loans in the banking sector and the very high stock of public and external debt.

Strong resurgence in the next 2 years

Fitch also stresses that it expects a strong economic recovery in Greece over the next two years despite last year’s recession, estimating that there will be a significant easing of the global pandemic crisis after the start of vaccination programs and the disbursement and absorption of funds from the EU Recovery Facility.

In the medium term, effective structural reforms and continued higher EU funding could boost the growth of the Greek economy, the agency said, adding that risks include the long-term effects of the pandemic, of business bankruptcies, and higher job losses compared to what it expects.

The greatly reduced tourist arrivals had a significant impact on the current account with the deficit widening to 6.7% of GDP in 2020 from 1.5% in 2019. However, the agency, as it states, expects a gradual reduction of the deficit in the next two years .

Deficit reduction

According to Fitch, political support and lower economic activity suggest that the general government balance has shifted from a surplus in 2019 to a deficit of 9.7% in 2020.

The recovery over the next two years will reduce the deficit to 4% in 2022. It also estimates that general government debt to GDP will fall to 192.5% by the end of 2022 after rising to 206.3%. of GDP in 2021. In terms of growth, it maintains its estimate for the rise of the Greek economy by 7.6% in 2022 from 3% growth this year.

Pressure in Greece will be exerted by the possible failure to reduce the debt to GDP ratio, the negative developments in the banking sector that will increase the risk to public finances and the real economy, as well as indications that the pandemic will ultimately have a long-term impact on the Greek economy and its medium-term development.