Recent above-trend growth for Greece has been fuelled by strong tourism proceeds, robust private consumption (deploying remaining savings from the pandemic crisis), and better investment given strengthened investor confidence. Our average growth estimate of 1.4% from 2026 to 2029 optimistically assumes no meaningful crisis out to 2029 and no annual recession over that horizon.

Greece has maintained progress on reforms and investments of Greece 2.0, the Recovery and Resilience Plan (RRP), and the EU Cohesion Policy. On 16 October, the European Commission disbursed the fourth payment of EUR 998.6m in grants from Greece’s EUR 35.9bn Recovery and Resilience Plan. A total of 51% of all RRP funding has been paid out to date.

While investment today is higher than before the pandemic, it remains low at just 14% of output in the year to Q2 2024. That is below the euro-area average of 21%.

Enhancing labour market flexibility remains a priority. Unemployment had declined to 9.5% of the active labour force by August of this year, from June 2020 peaks of 20.4%. Although unemployment is near its lowest since 2009, it remains meaningfully above the EU average of 5.9%. We see Greek unemployment averaging 10.0% this year and 9.6% in 2025.

Improving Banking System Resilience, Declining NPLs and Government Holdings

Greek banks have made further progress in reducing non-performing loans (NPLs). System-wide consolidated NPLs had fallen to 6.9% in June of this year from 49.1% in June 2017, although the ratio remains above the 1.9% average for the EU. Scope expects Greek NPLs to continue declining as the banks remain committed to further balance sheet clean-up.

Banks’ significant holdings of domestic government bonds and state guarantees under the Hercules securitisation programme reinforce the sovereign-bank nexus. This continues to be an economic concern, although inter-linkages have diminished as the government exits its stakes in the banks.

The Hellenic Financial Stability Fund (HFSF) recently completed the sale of 10pp of its 18.4% holding in National Bank of Greece via a marketed share offering. HFSF expects to transfer the final 8.4% to the sovereign wealth fund. The HFSF sold its final 8.9781% stake in Alpha Services and Holdings to UniCredit in November of last year and sold the final 27% stake in Piraeus Bank this March. Its remaining holding is 72.5% of the smaller Attica Bank.

Challenges for Greece’s Credit Rating

Scope affirmed the BBB- investment-grade rating of Greece in July and changed the Outlook to Positive from Stable to account for favourable developments. Nevertheless, Greece’s credit ratings remain challenged by its elevated government debt ratio, the second highest of Scope Ratings’ 40 publicly rated sovereigns after Japan.

As Greece finances itself in markets and repays bailout loans early and as the European Central Bank continues quantitative tightening, the structure of its debt is gradually weakening. Net interest payments are increasing as the sovereign refinances via more expensive market issuance, from 6.3% of revenue this year to a forecast 7.9% by 2029. The long weighted-average debt maturity of 19.2 years is also gradually declining.

Scope Ratings’ next scheduled publication on Greece’s sovereign rating is due by 6 December this year.

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Dennis Shen is a Senior Director in Sovereign and Public Sector ratings at Scope Ratings GmbH, and primary analyst for Greece’s sovereign rating. Keith Mullin, senior writer at Scope, contributed to drafting this commentary.