The recent economic ‘adventures’ of the Greek economy had the side effect of both experts and non-experts understanding the importance of the evaluation of Greek government bonds by international credit rating agencies.
The optimistic news is that over the past few months, we have witnessed the positive response of credit rating agencies to the efforts made by successive governments and economic staff for fiscal consolidation and economic recovery.
However, the question of whether current ratings fully reflect improvements in the fundamentals of the Greek economy and, consequently, what the prospects are for the course of Greek sovereign ratings in the medium term remains more relevant than ever.
To answer this question, we have developed a broader statistical model that correlates Moody’s ratings with macroeconomic fundamentals, political risk and economic governance data across a set of 123 developed and emerging markets.
The general conclusion from the evaluation of our model is that Moody’s ratings remain extremely conservative. We estimated that only 22 of its ratings coincide with the results of our model. Of those remaining, 39 of Moody’s ratings are higher than our estimates, while in 62 countries, Moody’s assigns a more conservative rating than our model. Before moving on to the ‘Greek results’, it is interesting to consider the cases of the USA and the United Kingdom. Moody’s rates the two economies higher than our model, indicating that the size, tradition and depth of some economies provide certain advantages.
On the contrary, when focused on the Greek economy, we found that despite the recent upgrade of its rating from Ba3 to Ba1, Moody’s rating remains conservative, as (according to our estimates) Greece has ‘conquered’ the Baa3 investment grade since 2020. Examining Greece’s four pillars (i.e. economic, fiscal and institutional strength and event risk), the only deterioration is recorded in event risk, which is common to the majority of the economies we examined.
