Remember when, in 2009, in the wake of the Greek debt crisis, no newspaper front page was complete without the latest updates from Athens? The Greeks haven’t forgotten either. But those who haven’t been checking up on Greece in the past few years are up for a pleasant surprise. Greece has been consistently cleaning up its act to the point that major investment firms are singing the praises of Greek bonds, with Goldman Sachs describing them as “good quality” securities. The positive outlook for the economy, paired with Greece’s cautious borrowing, is turning the country into a stable player worth the investors’ attention.
Here’s what Greece is doing right and what the near future might bring:
The past
Economic depression, institutional instability, and acute underinvestment with governments cutting spending on health, education, and infrastructure. The Greek debt crisis (2009-2015) left a severe scar on Greece’s economy. But something finally started to change. By 2019, foreign direct investment recovered, and business confidence rapidly strengthened, in line with progress on budgetary consolidation and structural reforms, including tax compliance, the labor market, competition laws, and aspects of judicial reform.
And then, the COVID-19 pandemic hit, galvanizing Greece’s recovery. But the pandemic also brought more positive changes. The rapid digitalization of public services boosted the reduction of tax evasion and made the public sector much more efficient. In Greece, that’s always good news. Pair this with the strong performance of tourism, shipping, manufacturing, and the banking sector in the past several years, and you’ll know what spurred additional investment.
The present
At the end of October 2023, S&P Global Ratings raised to ‘BBB-/A-3’ from ‘BB+/B’ its long- and short-term local and foreign currency sovereign credit ratings on Greece, with a stable outlook. “Supported by a very rapid economic recovery, the Greek government has been able to regularly outperform its own budgetary targets,” the credit rating agency writes. With a new government led for a second term by reformist Kyriakos Mitsotakis solidly in place due to a very comfortable majority in the Parliament, credit rating agencies appear confident that Greece’s economic reforms and growth will continue. In 2023, real GDP growth is expected to remain above euro area peers’ at 2.5%, primarily boosted by investment and tourism.
Greece’s debt is still very much a work in progress, but credit rating agency Standard and Poor’s is confident that Greece’s debt is “now firmly on a downward trajectory.” After peaking at 207% in 2020 (debt to GDP ratio), the agency estimates gross general government debt will fall to about 139% of GDP by 2026, predominantly due to pronounced nominal GDP growth. As for 2023, credit rating agency Fitch, currently labeling Greece with a BB+ rating, expects the public debt/GDP ratio to fall to 162.2% and to 154.4% in 2024. Again, that’s a projected 50pp decline from the height reached in 2020, but here’s the catch: This number is still three times the ‘BB’ median public debt/GDP ratio of 55.6%. All in all, a lot still needs to be done.
The future
Fitch expects the Greek economy to expand by 2.0-2.5% in 2024-26, driven by investment and a recovery in household consumption. Positive outlook aside, Greece remains a small country exposed to unexpected changes in the global economy.
What to be on the lookout for? With Greece relying to such a large extent on tourism, a potential economic slowdown affecting recreational travel is certainly a red flag. Greece’s tourism sector has been breaking records in 2023, with the first seven months’ travel and transportation receipts being 18% above levels for the same period in 2019. What does this mean? It’s simple: Greece has experienced the fastest recovery among major European tourist destinations. Furthermore, factors influencing shipping, another key industry, are also to be watched closely, as well as sudden spikes in energy prices.
Also, in August 2023, Greece submitted a request to modify its National Resilience and Reform Plan, bringing total funds available to Greece under the EU’s Resilience and Recovery Facility (RRF) over 2021-2026 to EUR 36 billion (EUR 18.2 billion in grants and EUR 17.7 billion in loans). The numbers make Greece the largest beneficiary of the RRF in the EU relative to the size of its economy.
