ATHENS – Greece’s economy is accelerating with the COVID-19 pandemic winding down faster but it likely won’t be known until after spring elections whether the recovery will bring investment grade status from ratings agencies.
Financial analysts told the news agency Reuters that the decision will hinge on whether the New Democracy government, which hopes to stay in power, continues reforms with restraints after pouring state subsidies to help households with electricity bills.
Prime Minister Kyriakos Mitsotakis hoped to have a ratings upgrade before elections but agencies are keeping an eye on political developments, always anxious about volatility and a bruising rematch between the Conservatives and SYRIZA, which was ousted in July, 2019 snap polls.
Once soaring inflation has come down but it cut into growth, with a 5.6 percent increase in the Gross Domestic Product (GDP) of 198.47 billion euros ($214.9 billion) seen being only 1.8 percent in 2023.
“The Greek economy has shown resilience during recent crises, supported also by the EU institutions,” Spyridoula Tzima, Vice-President of ratings agency DBRS Morningstar told the news agency.
“However, the macroeconomic environment has deteriorated, increasing the downside risks for Greece and the other euro area economies,” she said, and that it won’t change until after elections, not set yet, but seen coming in April.
Greece lost its investment credit ratings, which imply a very low risk of default, in 2010, a year after the country’s debt crisis emerged and required three international bailouts of 326 billion euros ($301.08 billion) to correct.
Four of the five major international rating agencies have Greece one notch below investment grade but Moody’s is three notches back, putting further optimism on hold now.
The government forecast a small primary surplus of only 0.7 percent of GDP after three years of primary deficits and debt shrinking by 10 percents to 159 percent, which Mitsotakis said while out of office was near unsustainable.
If high inflation persists for longer, however, it could slow Greece’s growth further and constrain the European Central Bank in its vital support for Greece, Scope Ratings warned, the news agency added.
Because of a change in the electoral laws brought by SYRIZA in its last days of power, it’s almost certain that two elections will be needed because of dim prospects for any first-place finisher in a first round having enough seats in Parliament to form a government without a coalition.
Mitsotakis’ conservative government has spent more than 40 billion euros ($43.31 billion) since 2020 to support households with their energy bills, and pension benefits and the minimum wage will be increased in what SYRIZA said was a bid to buy votes, a common practice by all ruling governments.
Rating agencies and economists have warned against any backtracking on reforms that could drive away investors that Mitsotakis has been seeking, and that increases in spending could hurt reaching investment grade.
an expected slowdown in Greek reforms that may affect investment, delays in “A prolonged period of political uncertainty could harm the economy substantially,” said Nikos Vettas, head of Greece’s leading IOBE think-tank. “What is crucial is not only to have a stable government without a major delay, but also one with a credible and ambitious plan for economic growth,” he told Reuters.