Fitch revises Greece outlook to positive, affirms at ’BBB-’

Investing.com -- Fitch Ratings announced an update to Greece’s credit outlook, shifting it from stable to positive and maintaining the country’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’BBB-’. This decision reflects a series of improvements in Greece’s fiscal and economic performance.

The revision of Greece’s outlook to positive is primarily due to the country’s substantial budget surplus and a significant decrease in public debt. In 2024, Greece achieved a budget surplus of 1.3% of GDP and a primary budget surplus of 4.8%, which surpassed the government’s initial target. This performance, which also exceeded Fitch’s expectations, represents a considerable improvement from the 1.4% deficit recorded in 2023. The surplus is attributed to structural fiscal enhancements, including improved tax collection and controlled spending.

Additionally, Greece’s public debt experienced a steep drop, with a 10 percentage point decline to 154% of GDP in 2024, aided by real GDP growth of 2.3%. Despite the debt level remaining high compared to the ’BBB’ median, it has significantly fallen from the peak of 209% in 2020. Greece’s debt reduction is the most substantial among Fitch-rated investment-grade sovereigns post-pandemic. The country’s cash reserves are robust, estimated at approximately €36 billion, which is sufficient to cover debt obligations for the next three years.

Fitch also acknowledged the Greek government’s prudent fiscal framework, which aligns with the new EU fiscal standards. The government has demonstrated commitment to maintaining small budget deficits and a steady debt-to-GDP ratio decline. The firm forecasts that Greece will continue to see budget surpluses in 2025 and 2026, though below 1%.

The country’s economic growth has been resilient, with a consistent GDP growth rate of 2.3% in both 2023 and 2024, driven by domestic demand. Despite a small negative impact from net exports, household consumption and investment growth have remained strong. Fitch expects the Greek economy to maintain growth rates above 2% in 2025 and 2026, outpacing the eurozone’s forecasted growth.

Fitch also highlighted the strengthened banking sector in Greece, with the ratings of the four systemic banks being upgraded in March 2025. The upgrades reflect improvements in the operating environment, sound earnings, completed asset-quality clean-up, and stable funding. Despite this progress, a close link between the sovereign and the banks persists, primarily due to the substantial deferred tax credits in the banks’ capital.

Greece’s credit rating is supported by several factors, including income per capita and governance indicators that are on par with the ’BBB’ median. The country’s policy framework, bolstered by EU and eurozone membership, also adds to its credit strength. However, challenges such as the legacy of the sovereign debt crisis and external imbalances remain.

The positive outlook suggests that an upgrade could be possible if Greece continues to show a rapid decline in debt-to-GDP and maintains substantial primary surpluses. Conversely, a negative rating action could occur if there is a stabilization of debt-to-GDP due to fiscal loosening or the materialization of significant contingent liabilities, or if an adverse shock affects Greece’s medium-term growth potential or worsens external imbalances.

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