Of pats on the back and causes for concern

by Antonis D. Papagiannidis

The pat on the back Greece got from Standard&Poor’s (credit rating upgrade to BB+, with stable prospects, one notch away from investment grade) just one month after a similar move from DBRS, is reason for some rejoicing on part of Greek officialdom.

The rating agency made its move – which was less than expected in Athens – notwithstanding the effects of  the Ukraine crisis, climbing energy prices and inflationary pressures on the Greek economy; although cutting GDP forecasts to some 3.4% for the whole of 2023 (with an average of 3% for the 2023-25 period), S&P were kind enough to mention as rationale for their positive assessment “the effectiveness of economic policy”, along ECB support and the existence of cash reserves as well as the favourable profile of Greek public debt.

It is still too early to say whether this S&P upgrade – Fitch’s verdict is for July, Moody’s for September, the next S&P pronouncement is for October – along with Greece exiting the EU Enchanced Surveillance routine on August 2022 will be enough for investment grade to be achieved within 2023, as the Greek government ardently wishes.

The remaining structural imbalances of the Greek economy – the latest signal being the abrupt deepening of the trade deficit by more than 130% just as the economy picked up once out of the pandemic recession – the fact that energy shortages may be ahead due to the potential cut-off of Russian natural natural gas supply (either because the EU sanctions extend to that area or because Moscow responds to sanctions) are cause for longer-term concern. Moreover, the fact that Greece “will have to live with more expensive energy” as the shift to clean energy will now occur along with the mid-term leap of natural gas and oil prices adds to uncertainties ahead.

Athens dearly hopes that measures to counteract the energy shock (both supply- and cost-based) will be taken at EU level; still, the signals from Brussels are not so much for an anticipated EU joint Fund that would alleviate the energy burden for businesses and (even) for households, but rather for the promotion of energy-saving and -development investment. Thus, the Greek government would have to assume the cost of whatever direct support measures will be deemed necessary with own funding.

Not exactly a comfortable situation for an economy with a public debt of 200+% of GDP, facing 3% yields of its 10year sovereigns.