May 15th, 2013

Fitch upgrades Greece’s credit rating to ‘B’- on May 14th 2013  

Fitch upgrades Greece’s credit rating from CCC to B-. The firm emphasizes on the country’s clear progress in balancing the economy and reducing its’ deficit.

The upgrade of the country’s sovereign ratings by one note, reflects the following factors: 

The Greek economy is rebalancing : clear progress has been made towards eliminating twin fiscal and current account deficits and ‘internal devaluation’ has at last begun to take hold.

The Economic Adjustment Programme (EAP) is on track amid a semblance of political and social stability.

Furthermore, in its analysis Fitch Ratings also mentions the following points:

” Greek primary fiscal adjustment of over 9% of GDP in 2009-12 (excluding one-off support to the financial sector), and around 16% in cyclically adjusted terms, ranks as the most ambitious instance of fiscal cosolidation among advanced economies in recent times. The current account deficit has also shrunk from 10% of GDP in 2011 to 3% in 2012. The revised EU-IMF programme gives Greece two additional years (2015-16) to attain a primary surplus of 4,5% of GDP. This relaxation is reflected in Fitch’s expectation of a milder economic constuction of around 4.3% in 2013 (-6.4% in 2012) and a weak recovery in 2014.

Structural reforms are progressing. The financial system has stabilished: EUR16bn-EUR17bn of time deposits have returned to the system since mid-2012 and bank recapitalization is well advanced. Mean while, a small, but significant milestone was passed earlier this month with the completion of the first major privatization since the EAP began. Considerable progress has also been made with labour market reforms and 80% of the earlier loss of competitiveness has been clawed back. However, product market reform remains a major challenge: progress in this area will be important to support a sustainable recovery and for the success of the EAP .”

The Stable Outlook reflects Fitch’s assessment that upside and downside risks to the rating are more broadly balanced than in the recent past. Nonetheless, the following risk factors individually, or collectively, could trigger a rating action:  

Sustained economic recovery founded on solid implementation of the EU-IMF program, including broad structural reforms, would be grounds for an upgrade. Conversely, failure of the economy to recover, leading to the re-emergence of renewed funding gaps could trigger a negative rating action. Likewise, renewed political and social instability, leading to an unraveling of the EU-IMF program, would intensify the risks of Greek exit from the euro zone and widespread default – sovereign and private sector – leading to a downgrade.