16 Jan 2015
Fitch revises Greece's outlook to negative amid political uncertainty
FXStreet (San Francisco) - Fitch ratings affirmed Greece's sovereign rating at B; however the agency lowered its outlook to negative according to a press release published today.
According to Fitch the negative outlook reflects the current political uncertainty and its effect in a possible delay of the "reopening of market access."
"Prolonged political deadlock until the summer is not Fitch's expectation, but would increase the risk of financing difficulties and a return to recession."
A possible Syriza victory in the early elections and its divergences with the Troika proposals could add more complications to the negotiations.
Key quotes:
The current period of political uncertainty has increased the risks to Greece's creditworthiness as official financing, and any potential reopening of market access, could be delayed for some months.
Prolonged political deadlock until the summer is not Fitch's expectation, but would increase the risk of financing difficulties and a return to recession.
In Fitch's view, an agreement between a new Greek government and the Troika remains likely as there are strong incentives on both sides for a deal. This holds in the event of a Syriza victory in the election, which opinion polls suggest is the most probable outcome. Nevertheless, there is a wide gap between the policy proposals of both sides, such that negotiations would be complicated and subject to risks.
In an adverse scenario, prolonged political turmoil combined with a lack of funding would place serious strains on the government's cash flow by the summer. Tighter liquidity conditions in the general economy would risk derailing the recovery in the Greek economy
The economy is bottoming out, with real GDP having expanded modestly in 1Q14-3Q14. Fitch forecasts GDP growth of 0.5% in 2014, rising to 1.5% in 2015, a downward revision of 1pp since our last review in November 2014.
According to Fitch the negative outlook reflects the current political uncertainty and its effect in a possible delay of the "reopening of market access."
"Prolonged political deadlock until the summer is not Fitch's expectation, but would increase the risk of financing difficulties and a return to recession."
A possible Syriza victory in the early elections and its divergences with the Troika proposals could add more complications to the negotiations.
Key quotes:
The current period of political uncertainty has increased the risks to Greece's creditworthiness as official financing, and any potential reopening of market access, could be delayed for some months.
Prolonged political deadlock until the summer is not Fitch's expectation, but would increase the risk of financing difficulties and a return to recession.
In Fitch's view, an agreement between a new Greek government and the Troika remains likely as there are strong incentives on both sides for a deal. This holds in the event of a Syriza victory in the election, which opinion polls suggest is the most probable outcome. Nevertheless, there is a wide gap between the policy proposals of both sides, such that negotiations would be complicated and subject to risks.
In an adverse scenario, prolonged political turmoil combined with a lack of funding would place serious strains on the government's cash flow by the summer. Tighter liquidity conditions in the general economy would risk derailing the recovery in the Greek economy
The economy is bottoming out, with real GDP having expanded modestly in 1Q14-3Q14. Fitch forecasts GDP growth of 0.5% in 2014, rising to 1.5% in 2015, a downward revision of 1pp since our last review in November 2014.