According to comprehensive reports from Worldway Group: On August 4, Moody's upgraded Greece's government bond rating from Caa3 to Caa1. Moody's Investors Service upgraded Greece's government bond rating by two notches last Friday, from Caa3 to Caa1. Moody's also maintained a stable outlook for Greece's government bonds. Greece's short-term debt rating was not affected and remains in the "not prime" category. Moody's upgrade is primarily based on the following aspects.
1. Over the past few years, Greece's fiscal situation has improved significantly, and the rating agency believes that the Greek government remains committed to fiscal consolidation. This has led Moody's to lower its public debt-to-GDP ratio. Moody's expects this ratio to peak this year but to decline next year.
2. The improvement in Greece's economic outlook, based on cyclical recovery and progress made in implementing structural reforms and economic rebalancing, has collectively contributed to the decline in the public debt ratio.
3. The government has reduced its interest burden and extended the maturity of its debt. This has increased fiscal flexibility and reduced refinancing risks.
Moody's expects Greece's general government debt to reach 179% of GDP this year. The progress in fiscal consolidation achieved by the government under its economic adjustment program is very encouraging. Moody's expects the Greek government's primary surplus to be approximately 1.6% of GDP this year, and the headline budget deficit to fall to 2.9%. Last year, Greece recorded its first fiscal surplus since 2002. This was one year ahead of schedule. More importantly, Moody's noted improvements in Greece's fiscal system, and these changes can provide support for achieving future budget targets while also supporting debt reduction.
As Greece's improving economic environment provides the country with better fiscal and debt trends, there is more certainty regarding Greece's economic situation. Greece's net exports and domestic demand are also improving. Although real GDP continues to contract, the pace of contraction is much slower than expected. In the first quarter of this year, private consumption grew by +0.7%, the first time in 15 quarters, which also reflects an acceleration in economic activity. Investment continues to decline, but at a slower pace, which is mainly offset by EU aid funds.
Although Greece has seen mixed results in its structural reforms to date, the Greek government has made significant progress in labor market reforms. These reforms have led to adjustments in wages and prices. These adjustments far exceed those of other peripheral Eurozone countries.
Worldway Group Editor
