When Greece comes out of the junk – analysts’ forecasts

The recent upgrade of the S&P rating gives hope that Greece can return to the investment category in 2022, that is, 12 years after its rating was downgraded to junk.

Greece’s goal of breaking out of the low rating and returning to the investment category in 2022 is now considered achievable, as the unexpected rating upgrade by S&P Global Ratings signals other rating agencies and accelerates developments. 2022 will mark 12 years since the country was classified as trash, which happened in April 2010 when Athens approached the International Monetary Fund and what is known to follow.

“I believe that the chances of Greece upgrading to investment grade by at least one company in 2022 have increased significantly since the S&P decision last week,” Deutsche Bank director of bond analysis Ioannis Sokos told moneyreview.gr.

If the timetable is confirmed, it will be a particularly significant event for the Greek economy, which from March 2022 could be left without the European Central Bank’s “safety net” in bond markets. The bailout program is shutting down the securities market in the wake of the PEPP pandemic, which included only Greek government bonds, that is, despite being rated as “junk grade” bonds.

Thus, a return to the investment category in 2022 will have not only symbolic significance (since it will permanently close the chapter on the debt crisis and cement Greece’s return to the number of “normal” eurozone countries), but also significant for the economy. As it is well known that the participation of Greek bonds in the quantitative easing program has reduced the cost of borrowing to the lowest level ever.

“The most encouraging sign is that this update came during the pandemic and before the disbursement of the European Recovery Fund, which will be critical, especially for Greece, given their size,” explains Mr Sokos. According to him, Greece’s rating would not have been raised so quickly if the government had not pursued a policy of accelerating structural reforms, as evidenced by the fact that this was one of the main reasons cited by S&P analysts.

“I believe the S&P move could open the door for other rating agencies this year,” Sokos said. And he explains that the fact that the S&P has upgraded Greece’s rating without an interim step in the form of raising the outlook to positive is encouraging given that other companies are now giving a stable outlook on Greece’s rating. “In addition, S&P positively assesses the new rating of Greece at BB, which makes it possible to increase it in the coming months,” he added.

Indeed, S&P analyst Frank Gill described it as “quite possible” that the country will undergo a new modernization over the next 12 months, however, estimating that it is still a long way to go beyond the garbage level. It is noted that the next inspection of Greece “home” is scheduled for October 22.

According to the analyst of DZ Bank Daniel Lenz, the dynamics of the rating of Greece is positive, and the next updates are expected later in 2021 or early 2022. “All three big houses have increased their ratings since the beginning of 2020. And he predicts that “at home” will now wait for the end of this crisis in order to assess how quickly the Greek economy can recover, ”the analyst explains in an interview with moneyreview.gr. He points out that the pace of recovery and the government’s commitment to a return to fiscal neutrality will be key factors that will determine the course of the assessment.

“Factors such as the upcoming tourist season and the opening up of the Greek economy, coupled with the timely disbursement of Community funds and their efficient allocation, will certainly play a role in the timing of the next updates,” adds Sokos.


It is worth noting that the next critical dates for Greece are May 21, when Moody’s will review, and July 16, when Fitch takes over.

As Fitch said this week, the reasons are: the return of the debt-to-GDP ratio to a downward trajectory after the shock due to the coronavirus, improved medium-term growth prospects after the pandemic, and new progress in improving the quality of banks’ assets, which could lead to higher creditworthiness in Greece.

It is important that Greece needs at least one investment rating (from S&P, Moody’s, Fitch and DBRS) in order for Greek bonds to be included in the ECB’s “normal” securities market program after the end of PEPP. And as Mr. Sokos points out, S&P and Fitch currently rank the highest in Greece (BB, two notches below investment grade), but S&P has a positive outlook while Fitch’s report remains stable.

“Moving to the investment category is a much more important step. Given the high level of Greek debt, I expected rating agencies to consider such a thing only if cheap financing is secured and in the long term, ”said Daniel Lenz of DZ Bank. “If the ECB does not continue to buy Greek government bonds under the PEPP after the coronavirus crisis, the European financial union could, for example, provide a cheap level of funding. But so far I do not see a political consensus in the EU in favor of such big changes, ”he explains. “Therefore, I think it is too early to predict a date when an upgrade to investment grade will be realistic,” he concludes.

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