Analysts: Investment grade within reach
Greece’s strong performance compared to the eurozone and the upward trajectory of the country’s ratings by rating agencies on the way to achieving investment grade, are the biggest catalysts for the Greek economy, as well as for the course of Greek bonds and banks.
Morgan Stanley even sees a triple upgrade to investment grade by mid-2024, Citigroup is betting on a further significant contraction of Greek spreads, while Goldman Sachs has confirmed its positive attitude toward Greek banks thanks to the prospect of Greece soon entering the group of countries with investment grade.
In its new report on Greece, Morgan Stanley points out that the Greek economy will continue its trend of outperforming the eurozone economy this year and in 2024, recording rates of around 2.5% and 2.2% respectively (compared to 0.7% and 1% for the euro area), which combined with the continuation of the current policy of reforms and fiscal consolidation will lead the country back to investment grade. The fall in inflation and the growth rate of real incomes are expected to support private consumption in the second half of 2023, while investments in Greece will continue to be supported by the Recovery Fund and an inflow of foreign direct investment which will move to record levels, Morgan Stanley estimates. According to the company, the recovery of investment grade is almost certain, with it estimating that a New Democracy government will continue to lead the country on its path toward fiscal consolidation and the implementation of the Recovery Fund reforms.
Citigroup does not rule out that Fitch may give Greece the long-awaited investment grade as early as this Friday, although it considers it more likely that it will upgrade the country’s outlook to Positive. The change in outlook is expected to drive the spread of Greek bonds 10 basis points lower. “The result of the first round of elections and the rapid reduction of debt/GDP strengthened the outlook for an upgrade for Greece, which is the only country in the eurozone with room for an increase in its rating at the moment,” as Citi points out.
A few days ago Bank of America predicted that the flows into Greek bonds when investment grade comes will be as important as they were during the ECB’s PEPP emergency program and are expected to reach 16 billion euros.
