Moody's upgrades Greece rating by two steps

AFPAugust 1, 2014
Moody's upgrades Greece rating by two steps

Washington (AFP) - Moody's raised troubled Greece's credit rating by two notches Friday, citing improvements to the government's finances and its commitment to further gains.

Moody's set its new rating for Greece at Caa1 with a stable outlook, up from the previous Caa3, still well in "junk" territory but a significant mark of progress as the country struggles to emerge from crisis.

The ratings agency said it expects Greece's debt burden to peak this year, at 179 percent of GDP, ad begin slowly falling as the economy begins to expand.

Greece will also meet the target for a primary budget surplus of 1.6 percent this year set by its bailout lenders, the International Monetary Fund, the European Central Bank and the European Commission.

"The government's progress in fiscal consolidation under its economic adjustment program underscores the improvement in the debt trajectory," it said.

"Moody's considers that Greece's fiscal outlook is more resilient than in the past, given the improvement in the debt affordability."

Greece's economy has continued to contract this year, shrinking at a 0.9 percent pace in the first quarter, but Moody's said this is better than expected and a great improvement on the 2013 contraction of 6.0 percent.

By the end of the year, it expects the economy will have expanded 0.4 percent and pick up to 1.2 percent growth next year.

The agency also acknowledged that while the structural reforms mandated by the troika of official lenders have only shown mixed results, the government's efforts to reform the labor market and some product markets have made "good progress."

"These reforms have led to wage and price adjustments, which far outstrip adjustments elsewhere in the euro area periphery," it said.