S&P restores Greece to investment grade

S&P Global Ratings has raised Greece’s credit rating to investment grade, marking the first such upgrade by one of the major credit rating agencies since the country’s debt crisis over a decade ago. The decision places Greece at BBB- with a stable outlook, joining other agencies like Japan’s Rating and Investment Information, Germany’s Scope Ratings, and Canada’s DBRS Morningstar in lifting Greece out of junk territory. This upgrade follows the resounding re-election of reformist Prime Minister Kyriakos Mitsotakis in June.

Mitsotakis has pledged to maintain business-friendly policies while ensuring budgetary discipline, even in the face of additional expenditures due to summer wildfires. He has also committed to reducing the debt-to-GDP ratio to below 140 percent by 2027 from a peak of 206 percent in 2020. S&P noted that Greece’s fiscal trajectory is improving significantly, and its economic recovery has outperformed budgetary targets, supported by rapid economic growth and increasing social transfers.

Greece’s economy is projected to expand by 2.3 percent in 2023 and 3 percent in 2024, outperforming many European peers. The country’s strong tourism sector is contributing to its economic recovery, with another record year expected.

While anticipated, S&P’s upgrade opens the door for further bond gains if Fitch Ratings or Moody’s also upgrade Greece’s rating. Greece needs to have a minimum of BBB- or equivalent from two of the three major rating agencies to be re-admitted to investment-grade-only bond indexes, a development that could attract significant investment.

In a sign of investor confidence, yields on 10-year Greek debt are now more than half a percentage point lower than equivalent Italian bonds, representing a substantial spread. S&P’s separate review of Italy’s rating on the same day kept Italy’s rating at BBB, one notch above Greece’s.

The Greek government’s ongoing divestment from local lenders is a positive sign for the country’s economy, which is gradually returning to normalcy. Moody’s recently upgraded Greece by two notches to one step below investment grade, and Fitch Ratings is the last of the major agencies to update its review, with a verdict scheduled for December 1.