Fitch upgrades Greek debt - a chart that reads "credit growth would get a boost from lower borrowing rates"

Achieving investment grade status in 2023 would be both symbolically and economically significant more than a decade after the sovereign debt crisis

Achieving investment grade status would act as an important signal of Greece’s macroeconomic stability. In turn, this would boost business confidence and encourage more foreign direct investment, with positive knock-on effects for B2B demand. Demand for credit among non-financial corporates and households has remained lackluster. Lower borrowing costs could encourage the ongoing recovery in credit growth, increasing corporate investment and consumers’ purchases of durable goods. Lastly, Greece’s return to investment grade status would reduce the yield on Greek debt. This would support public investments and, by extension, B2G demand. We would expect the government to prioritize spending on areas such as education and digital infrastructure, which would support the country’s long-term growth outlook. Lower borrowing costs would also help fund higher healthcare expenditure, which at 6.7% is 1.5 percentage points below the eurozone average.


  • At the end of January, Fitch announced it was raising the credit rating of Greek debt to BB+. This means three of the four major credit institutions now have Greece within striking distance of investment grade status.
  • The government and several international financial institutions expect the country will return to investment grade status this year. This would mark a major milestone for Greece and follows its full repayment of IMF loans last year, two years ahead of schedule.
  • A return to investment grade status would have meaningful economic benefits for the country, which lost a quarter of its GDP during the sovereign debt crisis and has yet to return to pre-2010 levels of output.

Our View

Despite some risks to the outlook, we expect Greece will return to investment grade status this year. In its updated credit rating, Fitch emphasized that further progress in Greece’s macroeconomic and fiscal performance would encourage another upgrade. Although economic growth is still set to soften from 2022, indicators suggest the outlook is improving from the gloomier picture painted last fall. For example, in December, inflation dropped 1.3 percentage points. Core inflation could prove more stubborn, but natural gas prices, the primary driver behind the headline inflation rate, appear past their peak. This will support the ongoing recovery in tax revenues, helping justify another upgrade to Greece’s credit rating.

Greece has also made significant strides in reducing its debt-to-GDP ratio. At 178%, Greece’s debt load remains the heaviest among eurozone countries. However, over the past three years, Greece has reduced its debt by the fastest rate, with the ratio decreasing by 40 percentage points. Moreover, unlike some other WEUR markets, we expect average GDP growth to remain positive this year, which—combined with inflation—will put additional downward pressure on Greece’s debt levels.

Admittedly, the upcoming election does pose a small risk to the outlook. That said, there appears to be broad political consensus for the need for fiscal consolidation. While the current governing party has been embroiled in a wiretapping scandal, it has yet to significantly dent its standing in the polls. If this changes, the government could be tempted to expand social spending, which would give credit rating agencies pause to reconsider another upgrade. 

Lastly, higher demand for credit as a result of lower borrowing costs could be constrained by lingering non-performing loans (NPLs) on Greek banks’ balance sheets. The NPL ratio declined to 9.7% in Q3 2022, marking the first time it fell below 10% since 2009. However, this is still substantially above the EU average of 1.79%. These volumes of bad loans continue to pose a risk to the stability of Greece’s financial system, albeit a smaller one than during the sovereign debt crisis.

MNCs should monitor any announcements regarding Greece’s credit rating by Fitch, Moody’s, or S&P—the three main credit rating agencies. An upgrade would likely lead to an immediate improvement in business confidence, even considering the inevitable lag in the downward movement of interest rates, possibly encouraging firms to rethink their investment plans for 2023 and 2024. However, any adjustment to government spending would be unlikely before the 2024 budget is presented this fall.

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