Morgan Stanley sees strong GDP growth in Greece. This, together with the continuation of reforms and fiscal consolidation, will result in Greece acquiring investment grade in the first half of 2024.
Strong growth and falling inflation
The Greek economy is expected to continue outperforming the eurozone in 2023 and 2024. Falling inflation and rising real incomes are expected to support private consumption in the second half of 2023.
Tight monetary policy will negatively affect the economy, but investment in Greece will continue to be supported by the Recovery Fund and a record inflow of foreign direct investment. GDP growth is estimated at 2.5% in 2023 and 2.2% in 2024.
A correction is expected on food and energy prices leading to lower inflation in Greece this year, from 9.6% in 2022 to 3.6% in 2023. However, core inflation is likely to remain high, mainly due to prices of entertainment services, as well as hotels and restaurants provided that everyone expects a very strong tourist season.
Fiscal consolidation
Thanks to strong nominal GDP growth, the Greek economy experienced one of the fastest fiscal consolidations in Europe. Greece was able to return to a primary surplus as early as 2022 and reduce the debt-to-GDP ratio by 35 percentage points from a record high of 206% in 2020 due to the pandemic.
It is estimated that steady growth and conservative fiscal spending will allow Greece to record a primary surplus of around 0.9% in 2022 and up to 1.5% in 2024.
Political developments and the investment grade
“Credit rating agencies such as Moody’s commented on the outcome of the elections saying that it is credit positive and it is estimated that the economic fundamentals are suitable for Greece to regain investment grade in the coming months,” according to the report.
“We maintain our view that Greece will be able to acquire investment grade status from three major credit rating agencies in the first half of 2024, but the upgrade could likely occur earlier if growth exceeds Morgan Stanley’s expectations,” it concluded.
