Greece affirmed at ’BBB/A-2’ by S&P Global Ratings; outlook stable

Investing.com -- S&P Global Ratings has affirmed Greece’s sovereign credit ratings at ’BBB/A-2’ with a stable outlook, balancing the country’s solid economic and fiscal performance against high external and government debt.

Greece is on track to exceed its fiscal targets in 2025, with the government projected to achieve a surplus of 0.4% of GDP this year before shifting to a mild deficit averaging 0.6% of GDP over 2026-2028.

Despite global uncertainty, Greece’s economic outlook remains positive with real GDP growth forecast at 2.1% this year. Tourism receipts increased by 12.5% in the first seven months of 2025 compared to the same period in 2024, helping to offset stagnation in industrial production during the first eight months of the year.

The unemployment rate has fallen to 8.1% in August 2025, less than half the level reported in 2019, placing Greece fifth from the bottom among eurozone members. Rising real wages and improved labor market conditions are supporting private consumption and retail sales.

Investment projects tied to the Recovery and Resilience Facility (RRF) continue to bolster economic activity, with GDP growth projected to average 2.2% over 2025-2026. Although RRF grant spending deadlines are set for 2026, debt-funded projects have until 2028 to execute, which should prevent a sudden drop in investment activity.

Greece’s current account deficit, which has remained elevated since 2020, is showing early signs of improvement in 2025, supported by strong tourism performance, falling interest payments, and lower oil imports. S&P forecasts the deficit will average 6.6% of GDP over 2025-2026 before declining to 5.5% over 2027-2028.

The country’s external position remains weak, with Greek residents holding a net external debt position of $273 billion (214% of current account receipts) in 2024. This high external debt level, combined with the current account deficit, exposes Greece to external financing conditions.

On October 6, Greece submitted its draft 2026 budget, which includes personal income tax cuts for most tax bands and targeted reductions for young people and large families. These measures, along with pension increases, are expected to support the economy in coming years while maintaining fiscal discipline.

Greece’s debt sustainability continues to improve, with net debt-to-GDP ratio projected to fall below Italy’s in 2026 and reach 116% by 2028, representing a 50-percentage point improvement compared to end-2019. The country maintains significant cash buffers of €42 billion (16.8% of GDP) as of end-June 2025.

The Greek banking system has stabilized, with the non-performing exposure ratio dropping to 4.6% from over 56% in 2016. However, structural bottlenecks in the justice sector and demographic challenges from an aging population continue to weigh on Greece’s long-term economic potential.

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