Polls stand in upgrade’s way
JP Morgan and other analysts say Greece will achieve investment grade after the election
The US bank estimates that Greece is likely to regain investment grade after the elections, by end-2023 or early 2024. It is therefore overweight on Greek government bonds, but only post-election. It discerns little political risk in the country with New Democracy remaining in government in its baseline scenario; however, it believes the election law “clouds” the landscape for investors and increases uncertainty.
Moody’s has also stated that although the risk of a significant change in economic policy is low, it still estimates there will be two rounds of elections and that the formation of Greece’s next government will be a long process of several weeks or more due to the electoral law.
The European Commission warned this week that the cost of support measures against the energy crisis in Greece was among the highest in the European Union but that most of them were not targeted, while according to the Organization for Economic Cooperation and Development a possible fiscal failure could delay the achievement of investment grade. For its part the Parliamentary Budget Office pointed out the political risk that may come from the possible difficulties of forming a government.
JP Morgan’s expectation is that New Democracy will win Greece’s elections, due by July 2023, and potentially form a coalition government, continuing to deliver a constructive political agenda. However, it sees risks at the same time. The biggest is that the formation of the majority coalition will be a time-consuming process, as the number of possible coalition parties is limited.
Also, there is the risk that New Democracy will have to rule the country with a minority government, though it fails to speak about a two-round election.
