MacroPolis

It was another mixed week for the Greek government on the economic front as its narrative of economic success faces further questions.

The week started with the S&P rating review, which was released last Friday. Although it left the rating unchanged at ‘BBB-‘ it upped the outlook to positive from stable.

The agency is in line with other leading rating houses, noting the progress made on the fiscal and debt fronts. However, it highlights the known issues of the Greek economy that define the path ahead for Greece’s rating score.

S&P argues that continuing the reform path is imperative for improved economic performance, while the small open economy characteristics of Greece leave it exposed to global challenges and geopolitical risks. It also notes that the country’s rating score is constrained by the large stock of debt and the weak external liquidity position.

The agency’s upside scenario sees upgrade prospects over the next 24 months if the debt ratio falls more sharply than assumed and economic outcomes outperform thanks to RRF deployment, further reforms and the fiscal performance remains solid over a protracted period.

Speaking to Kathimerini, S&P’s chief analyst said that it will be a while before Greece is considered again for an upgrade and this will probably be in the 2025-2026 period.

As the government sought to draw the communications benefits from the outlook upgrade, the Public Debt Management Agency (PDMA) went in search of more tangible results by issuing a 30-year bond on Wednesday

The transaction was met with strong demand that reached 33 billion euros, which is the second highest since 2010, after the 35 billion euros of offers of the 10-year issues at the start of the year. 

The yield settled at 4.24 pct, at 152 basis points over bunds, double the yield of 1.96 pct that the 2021 30-year issue had secured.

PDMA drew 3 billion euros from the transaction and already reached 70 pct of the annual debt strategy of 10 billion euros.

ELSTAT also released this week the fiscal data for the 2020-2023 period and the government could take comfort from the fiscal performance last year, with the primary balance exceeding 4 billion euros and reaching 1.9 pct of GDP, when the government had committed to a 1.1 pct of GDP surplus.

ELSTAT says that the debt load of the general government was 356.7 billion euros, leading to a debt-to-GDP ratio of almost 162 pct.

Although the authorities are restrained from using any of this outperformance this year in any form of handouts, the fiscal picture could mean lower heavy lifting to reach this year’s goal of 2.1 pct of GDP, a level that it needs to sustain over a period of decades.

On economic performance, the IOBE think-tank was the latest organisation that revised down its outlook on 2024 growth, now expecting 2.1 pct, from 2.4 pct previously. This is some distance from the 2.9 pct estimate of the Greek authorities, with reports this week suggesting that the Finance Ministry will soon revise down its own growth forecast, expected at 2.5 pct. Although it sees investments growing by 9.5 pct in 2024, IOBE remains more conservative on that front than the Finance Ministry.

The government’s narrative regarding the economy was also dented this week by a Financial Times article, which highlighted that wages in Greece are 30 pct below the pre-crisis level, while per capita GDP based on purchasing power places Greece near the bottom of the EU, followed only by Bulgaria that is fast closing the gap.

Eurostat had released this data in late March, as we highlighted in our newsletters at the time.