Athens Macedonian News Agency: News in English, 14-09-12

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From: The Athens News Agency at <http://www.ana.gr/>

CONTENTS

[01] S&P raises Greece's credit rating to 'B', outlook stable

[01] S&P raises Greece's credit rating to 'B', outlook stable

In an announcement, S&P said the upgrade decision reflected the view that risks to fiscal consolidation in Greece have abated. "We forecast that, from next year, the Greek economy will emerge from seven consecutive years of negative growth. We expect recovering real and nominal GDP will enable Greece to operate average primary surpluses of 2.0 pct of GDP during 2014-2017. This is less than the 4.5 pct of GDP target the government envisioned in its programme with the troika, but we believe the lower estimate is politically more feasible than the government's target and consistent with a modest decline in government debt as a share of GDP," the credit rating agency said.

S&P said it expected the Greek government to absorb an increase share of EU funds, further widen its tax base and improve tax collection, while on the other hand, it stressed that the government has little room for further manoeuvre on the expenditure side. "We believe it will carry out modest tax cuts, and we acknowledge downside risks to our forecast should deflationary pressure in the economy become entrenched," it said.

"We also view as low the likelihood of additional step-rises in government debt due to bank recapitalisations: the four largest domestic banks have raised 8.4 billion euros of capital directly from the markets and the Hellenic Financial Stability Fund has a balance of 11 billion euros for any capital calls from the public sector. Although the government may receive additional debt relief from official creditors, we do not anticipate it will approach private sector creditors for a third rescheduling. We also assume the government will continue to service the approximately 3 billion of debt held by creditors who did not participate in the two debt exchanges of 2012," S&P said.

S&P said it viewed Greece's economic recovery as gradual but weak, with 2017 real GDP still 20 pct lower than in 2007. A 16% decrease in unit labor costs between 2008 and 2013 has helped Greece's tourism sector. The country's small manufacturing sector, however, has not benefited to the same extent.

The credit rating agency also expects the current account to remain broadly balanced in 2014-2017 against a deficit of 11% of GDP in 2009, and stressed that while it expected the Greek government will broadly adhere to the current policy framework, "we view Greece's complicated political and policy environment as a ratings weakness. Even though reforms have so far supported fiscal performance and progress in restructuring of the economy, social tensions and a weak institutional framework remain."

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