S&P Raises Greece’s Rating to “BBB-” with Stable Outlook

Standard & Poor's Global Ratings raised Greece's credit rating to investment grade, in the first step of its kind taken by one of the three major rating agencies since the country was struck by a debt crisis more than a decade ago.

Yesterday, the institution placed Greece’s rating at “BBB-” with a stable outlook. Thus, Standard & Poor's joins Japan's Rating and Investment Information, Scope Ratings, and Canada's DBRS Morningstar in raising Greece. From the junk or non-investment grade rating. This comes after reformist Prime Minister Kyriakos Mitsotakis won a new term last June.

Mitsotakis pledged to maintain his pro-business policies, while making clear to markets that he would not jeopardize budget discipline, despite additional expenses over the summer due to the bushfires. He also promised to reduce the share of debt to less than 140% of output by 2027, from 206% in 2020.

"Budget consolidation has largely put Greece's fiscal position on a steady path of improvement. The Greek government, supported by a very rapid economic recovery, has been able to regularly exceed its budget targets despite a gradual increase in social transfers," Standard & Poor's said in a statement.

"Scope" reclassifies Greece to investment grade for the first time since 2010

The government expects the Greek economy to grow 2.3% in 2023 and 3% in 2024, outperforming most of its European counterparts. Tourism remains a major contributor to growth, and is on track to record another record year.

It is widely expected that Standard & Poor's' move will open the door for bonds to achieve their gains, especially if Fitch or Moody's, the trio of major rating agencies, follow suit. Greece needs to obtain a minimum rating of “BBB-” or equivalent from two of the three agencies to be readmitted to investment-grade bond indices, a inclusion that would give the country trillions of dollars in investment options.

Interestingly, the mere prospect of an upgrade in Greece's credit rating yielded gains in one of the worst years ever for global debt markets. Evidence of this is that its bonds are the best performing in the eurozone this year.

In another sign of investor confidence, yields on Greek 10-year debt are now more than half a percentage point lower than their Italian counterparts. The gap has never reached this extent before.

On the other hand, Standard & Poor's, in a separate review on Friday, maintained Italy's sovereign rating at "BBB", that is, one notch higher than Greece's rating.