Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Hellenic Republic (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BBB-/Stable Outlook; short-term local- and foreign-currency issuer ratings: S-2/Stable) on 22 January 2024.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, click here.

Greece’s long-term ratings of BBB- are underpinned by multiple credit strengths. Firstly, strengthened European institutional support since the Covid-19 crisis, in the form of extraordinary monetary- and fiscal-policy interventions, including innovations of recent years demonstrating a more lasting monetary backstop for Greece. Greece’s attainment of an ECB-eligible investment-grade rating has enhanced the stability of Eurosystem support for Greek debt instruments. In addition, the country’s general government debt ratio and general government deficit have been on an improving trajectory since recent years, supported by economic recovery, elevated inflation alongside the re-achievement of a primary surplus. Finally, structural-reform policies have curtailed high non-performing loan ratios, enhanced banking-system stability and mobilised private-sector investment, easing bottlenecks associated with weaknesses of the Greek banking system and counteracting historically low private investment.

Scope expects the Greek economy to experience comparatively sturdy growth of 2.2% in 2024 and 2.3% in 2025, comparable to an estimated 2.1% growth from last year. Household consumption should remain robust, amid decelerating inflationary pressures and strengthening labour-market outcomes, while the recent loosening of funding conditions should support a pick-up in investment. A more favourable external environment, including recovering demand from European trading partners, should also anchor the medium-run economic-growth outlook. The debt-to-GDP ratio should decline to around 140% by 2028 (from an estimated 160% at end-2023), supported by sustained primary surpluses over the forthcoming years, largely offsetting a parallel rise of the interest-payment burden.

Greece’s credit ratings remain constrained by: firstly, continued elevated government debt, representing a long-run vulnerability to re-appraisals of sovereign risk in financial markets. A gradual weakening of Greece’s favourable debt structure may present a challenge over the medium run. This is due to Greece issuing debt on private markets, which raises the average cost of financing, reduces the average tenor of debt and gradually raises the share of private- rather than publicly-held debt. This transition from public to private ownership of debt is further accelerated by the ECB’s quantitative tightening. Secondly, banking-sector fragilities remain. Finally, structural-economic weaknesses such as modest medium-run growth potential, high (although sharply declining) unemployment, a weak external sector, and long-run environmental challenges constitute credit constraints.

The Stable Outlook reflects Scope’s view that risks to the ratings remain balanced.

The long-term ratings/Outlooks could be upgraded if, individually or collectively: i) nominal growth and fiscal consolidation maintains a strong and sustained downward public-debt trajectory medium run; ii) banking-sector risks are further curtailed, via strengthening banking capitalisation, further reducing non-performing loans and/or curtailing sovereign-bank linkages; and/or iii) structural-economic and external imbalances are reduced, elevating medium-run growth potential and strengthening macroeconomic sustainability.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) Eurosystem support for Greek debt were reduced significantly, triggering crystallisation of more severe market scenarios; ii) fiscal policies remain loose for longer or a more severe economic downturn materialises, impeding or reversing the current trajectory of reductions of the sovereign-debt ratio; iii) banking-sector risks re-intensify, raising risk of the crystallisation of contingent liabilities affecting the sovereign balance sheet; and/or iv) the sustainability of macroeconomic growth weakens and/or macroeconomic and external-sector imbalances rise.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2023) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Dennis Shen, Senior Director

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