DBRS Morningstar upgraded on Friday night Greece’s credit rating to BB from BB (low). At the same time, DBRS Morningstar changed Greece’s trend from Stable to Positive.
The ratings upgrade reflects DBRS Morningstar’s positive view of fiscal and economic developments before the pandemic that positioned the country with more resilience to work through the ongoing challenges, the Canada-based rating agency stated.
Greece’s strong fiscal performance before the outbreak of the Covid-19 health crisis and sizable cash reserves, that increased to 32.2 billion euros in end-June 2021, gave the government fiscal space to cushion the impact of the pandemic by implementing support measures.
In spite of the high reliance on tourism, real GDP contraction of 8.2% in 2020 was milder than initially estimated, setting the ground for a strong recovery so far in 2021.
In addition, significant progress has been made in the reduction of banks’ nonperforming loans (NPLs), with the NPL ratio falling to 21.3% in June 2021 from 40.6% in December 2019. Improvements in DBRS Morningstar’s building blocks of “Fiscal Management and Policy”, “Economic Structure and Performance” and “Monetary Policy and Financial Stability” were the key factors for the ratings upgrade.
The Positive trend reflects DBRS Morningstar’s view that Greece’s future economic prospects appear to be considerably strengthened. Despite the health crisis, the Greek government continued to implement its structural reform agenda in co-operation with the European institutions, thereby improving growth potential.
Strong signs of economic recovery have already started to emerge. Initial GDP estimates point to an economic growth rebound of 16.2% year-on-year in Q2 2021, resulting in 6.9% growth in the first half of this year compared with the same period last year.
Furthermore, data from international commercial flights indicated after a relatively weak start, a strong performance of the tourism sector in the third quarter of the year, with international commercial flights in August reaching 93% of 2019 levels, DBRS Morningstar noted
Most importantly, Greece is expected to receive a substantial amount of funds from the Next Generation EU financial instrument and the Multiannual Financial Framework amounting to around €70 billion. Greece’s National Recovery and Resilience Plan (Greece 2.0) consists of reforms that will likely boost inclusive growth and investment narrowing the investment gap between Greece and its euro area peers.