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The breath of the investment grade and the unpredictability of inflation

It is certain that the gradual recovery of the investment grade will trigger broader and more favourable developments for both the economic environment and society

By: EBR - Posted: Wednesday, November 29, 2023

But what does investment grade recovery mean for businesses and households in simple practical terms?
But what does investment grade recovery mean for businesses and households in simple practical terms?

by Antonis Zairis*

It is certain that the gradual recovery of the investment grade will trigger broader and more favourable developments for both the economic environment and society. The events that paved the way for the return of confidence in the markets and the consequent positive assessment of the course of the Greek economy are briefly related to: First, the strong growth of 5.9% in 2022 (from 8.4% in 2021 - ELSTAT data) and the positive forecasts for growth of 2.2%-2.4% for 2023-24 , higher than the EU average. Second, the improvement in fiscal performance with estimates for a primary surplus in 2023 of 1.1% of GDP (a breath from the EUR 6 billion euro which reached in the first nine months of this year) and with a marginal primary surplus in 2022 of 0.1% from a 4.7% deficit in 2021 - ELSTAT data - and a reduction in public debt from 171% of GDP in 2022 to 162% in 2023. Third, the significant developments in the issue of non-performing loans through securitizations that directed the NPE ratio to single digits. Fourth, the post-election political stability after the elections of last June and the renewed confidence of the electoral system in the Mitsotakis government, which raises hopes for the immediate completion of the pending reforms in the public administration and the removal of obstacles to the undertaking and implementation of investment projects, spearheaded by the reforms in the justice system.

So at the end of the year, we will be at a decent rating level, but attracting investment capital requires and demands that we rise several levels as confidence, as we know, was easily lost, but will hardly be regained since deep and lasting changes in the State and the Public Administration are required.

The country’s return to the group of countries of the European Union that are considered investable for attracting foreign capital that will place their money "for sure" will now become a reality, and domestic securities and bonds will be accepted by the international financial community, as a result of confidence in the course of the economy. The deceleration of borrowing costs will therefore be a given and capital inflows will be inevitable.

But what does investment grade recovery mean for businesses and households in simple practical terms?

It means that the credit upgrade of the Greek State would result in significant reductions in the cost of raising capital from banks as confidence has been restored and interest rates will be within reasonable bounds. The participation of the country in the ECB’s funding programmes to ensure liquidity in the market would also be a given.

On the other hand, cheaper bank lending will bring multiple benefits as it will be passed on to businesses and households who will now be able to borrow at drastically lower costs, and the leverage of money in the real economy will stimulate and benefit numerically increased commercial transactions due to increased participation of the buying public who will feel relieved by possible interest rate reductions.

Nevertheless, the assessment of a serious parameter called the evolution of the inflation rate, especially after the recent events in the Middle East, is remarkable as inflation weakens the purchasing disposable income and forces the European Central Bank and the Central Banks into a contractionary Monetary Policy.

*Deputy Vice President of SELPE, Assistant Professor, Business Administration-Marketing, Neapolis University, Cyprus, Associate Professor ,Hellenic Mediterranean University, Greece & Member of the Association of American Economists (AEA) and Member of the World Economic Forum

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