Greek economy: In the turmoil of recession and without investment grade

The Greek economic agenda for 2023 revolves around 4 vital pursuits: return to a primary surplus of 1%, absorption of the Recovery Fund resources, upgrading to the investment grade and political stability.

For the first time since 2010, Greece is proceeding without enhanced supervision, away from the aura of the memoranda. But it still hasn’t escaped the stigma of the 2009 crisis as it hasn’t acquired the markets’ rubber stamp , i.e. the investment grade. This makes Greece‘s borrowing more “sensitive” to negative changes in the international climate and to domestic variables such as elections and fiscal imbalances.

Challenges

Greek economy enters yet another globally uncertain year. As its legacy it boasts a cash flow of 30 billion euros, a deficit of 1.6-1.7% and growth of around 6%. In addition to the economic goals, the Greek economy also faces major challenges and risks. Among the stakes – amid high inflation, interest rate hikes by the ECB, a European recession – is the dilemma between macroeconomic stabilization and fiscal sustainability.

Tackling inflation, taking only targeted support measures and reducing public and private debt are some of the things the government has to deal with. Alarms concern the possibility of the persistence of inflation, a large reduction in GDP, the delay in the formation of a government after the elections, the appearance of a new generation of non-performing loans and debts and geopolitical developments.

The government expects 2023 to be better in terms of price reduction. The budget incorporates the assumption that oil prices will be at the level of 85 dollars per barrel and natural gas will have an average price of 120 euros per megawatt hour. At this stage, the price for January delivery contracts has dropped to 76 euros per megawatt hour.

Two critical waystations

January brings first two crucial waystations. In the first month of the year, the first round of evaluations begins. There the intentions of the investors will be seen in view of the spring elections. Depending on the messages, it will then be decided by the Public Debt Agency whether it will attempt its first exit to the markets. The goal is for the state to raise about 7 billion Euros for 2023.

In the same month, the government’s financial staff has an “appointment” with Hellenic Statistical Authority-ELSTAT for the primary result of the 3rd quarter for 2022. The most critical month of 2023 for the fiscal year 2022 – and therefore for the space required for new state relief interventions – is this coming February.

From the middle of February and especially in March, the financial staff will have measured expected revenue, so as to safely record the 2023 strategy. Also in March, ELSTAT will announce the results for the growth in 2022. This means that the government will have official data on whether the growth rate will eventually exceed the current forecast of 5.2%. The extra amount will be channeled into new interventions and generally creates a positive momentum.

HOMES

Fitch, which rates Greece at BB, two notches below investment grade, makes a dent in January. Investment grade recovery is not expected before the spring elections. More important are the next scheduled assessments after the elections are held. From Fitch they are scheduled for July 8 and October 7.

In March, DBRS (March 10) and Moody’s (March 17) are expected to opine on the economy’s rating. It is possible that Moody’s will reduce the distance from the other rating agencies (it keeps Greece three places below the investment rating at Ba3). The second ratings are  expected in September. In 2022, Standard & Poor’s upgraded to BB+, the Canadian house DBRS to BB high and the German house SCOPE to the BB+ level.

INVESTMENTS

Absorption of the resources of the Recovery Fund will bring an increase in growth to 1.9 percentage points. It will boost investment which is estimated to increase by 15.5% over 2022.

GROWTH-INFLATION

Growth is expected at 1.8% (0.3% in the Eurozone) and for 2022 at 5.2%. The Bank of Greece sees GDP in 2022 at 6.2% and in 2023 at 1.5%. It predicts inflation of 9.4% this year and 5.8% for 2023.

SURPLUS

Return to a surplus of €1,668 million or 0.7% of GDP for 2023. For 2022, it will be in a deficit of €3,408 million or 1.6% of GDP. The debt is estimated at 355,000 million euros or 168.9% and for 2023 at 357,000 million euros or 159.3%.