Moody’s rewards Greece’s efforts with positive investment outlook

Moody’s yesterday rewarded Greece’s efforts to rein in debt and boost economic growth with a positive outlook on its bonds, the first major rating agency to applaud its fiscal progress. Moody’s predicted the 200-billion-euro economy, one of eurozone’s fastest growing, will sustain economic growth over the medium term while fiscal consolidation will continue to help cut public debt. «The government elected in 2004 has demonstrated a strong commitment to wide-ranging reforms of the country’s labor and product markets,» it said in a statement. The ruling conservatives, under the threat of EU sanctions for under-reporting its budget deficit to the EU for years, lowered the gap to 2.6 of GDP in 2006 – well below the EU’s 3 percent of GDP ceiling – from 5.2 percent in 2005. «It is obvious to all that public finances and the Greek economy’s prospects are constantly improving,» Deputy Finance Minister Petros Doukas told Reuters. «We have lowered our borrowing costs.» Fiscal tightening, improved tax collection and structural reforms, such as privatizations, are paying off despite labor unrest, while gross domestic product (GDP) growth remains robust. «Real GDP growth should be around 3.9 percent in 2006. Greece’s GDP per capita on a purchasing power parity basis is expected to reach 80 percent of the EU-15 average in 2008 against 77.2 percent in 2005 and 64.3 percent in 1998,» Sara Bertin, a Moody’s vice president and senior analyst said in a statement. «Growth should remain unabated over the medium term due to a pickup in investment and productivity gains,» she added. Market surprised Analysts said the announcement was a pleasant surprise for markets, with the spread of Greek 10-year government paper over eurozone benchmark Bunds shrinking by 2 to 3 basis points to around 24 on the news. «It surprised us a bit but it highlights the solid fundamentals of Greece,» said Piraeus Bank economist Michael Lambrianos. He said a move was expected by other rating agencies, such as Standard & Poor’s or Fitch, which both rate Greek bonds with A, a notch below Moody’s A1, before another move from Moody’s. Greece is scrambling to reduce its debt-to-GDP ratio to 100.4 percent this year from an estimated 104.3 percent in 2006, one of the largest debt mountains in the eurozone. It tapped markets for 5 billion euros with a new issue of 10-year paper this week, offering a spread of 30 bps over German Bunds, and is considering issuing longer-term paper. Moody’s said it noted Greece was re-evaluating its GDP – a long-overdue revision to include parts of the black economy that may raise the national output by 25 percent but which is pending EU approval. It added it would continue to monitor the government’s commitment to fiscal consolidation, improving competitiveness and pension system reform efforts. The talk of early elections did not appear to be a concern. The government has denied speculation it may call snap polls before its term ends in March 2008. «Moody’s does not anticipate that the next elections, which are due to take place in the autumn of 2007 or spring 2008, will lead to any drastic changes in policy,» it said.

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