Scope Ratings, the German rating agency, will release its report on the Greek economy this Friday evening.
Attention will be on whether it will elevate Greece’s credit rating or outlook to positive while maintaining the BBB rating, or if it will choose to keep the rating stable. Since the start of the year, three rating agencies have upgraded Greece, particularly in terms of its outlook. Notably, Scope Ratings was the first to raise Greece to investment grade in 2023 and subsequently elevated it further at the end of 2024, citing expectations for continued debt reduction, higher-than-expected primary surpluses, and recovery within the banking sector.
The agency’s recent analysis described Greece as a small but developed economy, noting its leadership in the global shipping industry, along with significant sectors like tourism, agriculture, and manufacturing. It projects a 2.2% growth rate for the Greek economy this year, with an average growth of 1.6% anticipated between 2026-2029. Despite a gradual recovery from the severe debt crisis, real GDP per capita remains approximately 40% below the European average. Analysts attributed recent strong economic growth since 2020 to robust private consumption, a rebound in private investment, government initiatives, and Greece’s National Recovery Plan.
Challenges Facing Greece
The primary challenge for Greece continues to be its high debt level, which may restrict the government’s capacity to support the economy during challenging times. While political and policy risks are deemed moderate in the short term, they may rise in the long run. Structural economic weaknesses and demographic issues, such as migration, pose constraints on the long-term growth trajectory and overall wealth levels.
Regarding unemployment, analysts observed a decline to 9.4% in 2024. However, this figure remains significantly higher than the EU average of 5.9% as of October 2024. Households are facing ongoing challenges due to wages being about 20% lower than they were 15 years ago and low disposable income. These factors present social hurdles, compounded by poverty and social exclusion affecting vulnerable groups.
Banking Sector Overview
Scope noted that Greek banks are more sensitive to interest rate fluctuations as their revenue heavily relies on net interest income, stemming from a focus on lending and a limited presence in non-bank financial services. The Greek banking sector has a relatively small mortgage market, with lending primarily directed towards businesses, particularly in shipping and tourism. The non-performing loan ratio improved to 3.6% in December 2024, down from 49% in 2017, as banks not only enhanced their balance sheets but also improved lending practices and monitoring standards.
