AIBC Forex: Greece’s remarkable decade-long rebound and what lies ahead

Category: Europe Forex

More than a decade after Greece faced the brink of bankruptcy and the possibility of exiting the eurozone,  S&P has more recently shifted its outlook for Greece from stable to positive, with the potential for a full upgrade to triple B minus, the lowest investment-grade rating.  Greece’s current credit rating stands at BB+, which is just one notch below the coveted investment-grade status. Nevertheless, the recent shift in its outlook to “Positive” indicates a promising trajectory, suggesting that Greece is poised to shed its “junk” status for the first time in over 13 years.

Financial turnaround

Fokion Karavias, CEO of Greek lender Eurobank, notes that achieving investment-grade status will have a profound impact not only on the government’s borrowing costs but also on those of local lenders and corporations. Greece’s economic resurgence follows years of struggle, marked by painful austerity measures and one of the highest relative poverty rates in the EU.

Greece’s economy has experienced a remarkable turnaround. It recorded one of the most robust recoveries from the Covid-19 pandemic, with GDP expanding by 8.4 percent in 2021 and 5.9 percent in 2022, signalling significant progress compared to its previous troubled years.

Fiscal improvements

Recent figures from Eurostat show Greece’s primary budget surplus of 0.1 percent in 2022, while non-performing loans on bank balance sheets have reduced from over 50 percent in 2016 to nearly 7 percent. This fiscal progress aligns with the expectations of economists at rating agencies and investment banks like Goldman Sachs, which foresee Greece continuing to outperform the Eurozone in the coming years.

Return from debt crisis

Greece’s path to potentially regaining its investment-grade status has been arduous. In 2012, the nation’s credit rating nearly hit its lowest rating during a debt crisis that posed a severe threat to the eurozone’s stability. Trade and export growth kicked in as a result of reforms that have not only stabilized the Greek economy, but have also driven tangible improvements. Greece’s goods exports have surged by 90 percent between 2010 and 2021, far outpacing the euro area’s 42 percent growth during the same period.

Debt reduction and inflation

Despite positive developments, Greece faces challenges such as the need for multi-year investment plans in human capital, infrastructure and health services to boost wages and reduce poverty. Households continue to feel the impact of rising prices in essential goods. The country’s government debt as a percentage of GDP, which surged during the pandemic, has started to decrease, aided by high inflation and Greece’s relatively longer average debt maturity of 20 years, compared to the advanced economies’ seven years.

Foreign direct investment and tourism

Greece has witnessed a significant increase in foreign direct investment, rising by 50 percent in the previous year to its highest level since 2002. The EU’s post-pandemic recovery fund is set to provide substantial financial support, equivalent to 18 percent of Greece’s current GDP. Additionally, tourism, a vital sector accounting for about one-fifth of GDP, rebounded to nearly pre-pandemic levels in the past year, further bolstered by investments in real estate by foreigners.

Construction industry’s resurgence

Even the construction sector, one of the hardest-hit during the financial crisis, is experiencing a resurgence. Overseas demand for properties has given hope for a sustainable recovery, albeit with cautionary apprehensions.

In summary, Greece’s journey from financial turmoil to the brink of an investment-grade rating showcases the resilience and progress of a nation that has faced significant challenges over the past decade. With continued reforms and stability, Greece appears poised for an economic revival that could signal a turning point in its financial history.

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