Japanese ratings agency R&I has upgraded Greece to B- from CC, while retaining a stable outlook.
“Greece's economy is finally bottoming out,” said the ratings agency. “With fiscal consolidation progressing as planned, the primary balance turned positive. Outstanding government debt is massive relative to gross domestic product (GDP), but will likely start declining within one or two years in tandem with improvement in the fiscal balance. Supported by improving funding conditions, the government's debt repayment capacity is recovering from its lowest level.”
R&I, however, added a few notes of caution to its new rating. One concerns the ability of the Greek economy to grow in the coming months and years.
“In addition to high unemployment rates, persistent deflation since March 2013 is a concern,” it said. “If domestic demand lacks strength and the economy fails to grow, it will become difficult to reduce debt as planned. R&I will pay close attention to whether the government is able to set the economy on the expected growth path by, for example, reducing bottlenecks on the supply side through structural reforms, though the Greek economy tends to be affected by economic trends in the euro area.”
R&I also drew attention to the vulnerability of Greece’s financial sector.
“While the financial system has regained stability for the moment, the ratio of non-performing loans in the banking sector stood at 33 percent at the end of 2013,” it said. “It will take considerable time before the banking sector restores its ability to provide credit.”