Thorny deficit hurts credit

Credit rating agencies agree that Greece’s credit account deficit prevents the country from achieving an even more improved debt rating.

The country spent 14 years with a junk rating on its debt before achieving the highly sought investment-grade rating. But recent data published by the Bank of Greece concerning the first five months of the year raise concerns from analysts.

According to the data, the current account deficit from January-May 2024 stood at €9.09 billion, nearly 23% higher than the €7.39 billion posted during the same period in 2023. The rise in the consumer goods deficit is the main factor, as exports declined and imports rose.

Analysts agree that this deficit will be reduced by the end of the year, especially as tourism revenue will be included. But they note that this persistent weakness of the Greek economy is slowing down growth, and does not help in drawing debt down; if anything, the debt burden may increase, putting paid to hopes of a debt rating upgrade.

On the bright side, Carlo Capuano, chief Greece analyst for rating agency DBRS, notes that the high deficit, although admittedly a brake on its debt rating, does not affect Greece’s competitiveness. Its composition shows that it is the result of robust domestic demand. Rising imports are also the result of the country’s recovery program, he adds. Nonetheless, the high current account deficit also reveals a production gap, which must be addressed. Capuano warns that a further deterioration of the deficit will lead to a rise in the external debt.

Other analysts note that Greece’s admittedly significant rebound from the debts of the financial crisis has led to a gap between domestic spending and domestic production, with the country again living beyond its means, as it did during the dire days of debt accumulation.