Greek economy shows resilience amid global bond market turmoil

The Greek economy has four strong lines of defence against turmoil in international bond markets. At a time when rising borrowing costs and concerns over the fiscal positions of major European economies, as well as the US, are causing significant market turbulence, the country’s financial safety net is helping to cushion the impact.

High primary budget surpluses, combined with a € 32 billion cash buffer, successive early repayments of public debt, credit rating upgrades by international agencies and growth rates that remain almost twice the eurozone average are the country’s four key strengths, according to banking and economic officials, CE Report quotes ANA-MPA.

This is also reflected in bond yields, which show that Greece is borrowing at a lower cost than France, Italy, the UK and the US. French 10-year bond yields have exceeded 5% amid international concerns over the country’s fiscal position. Italian 10-year yields stand at around 4.5%, those of the UK at 5.3% and US yields above 5%, while Greece’s yield is 4.4% and Germany’s 3.3%.

Another advantage for Greece, the same officials noted, is its limited financing needs and favourable debt structure. Together with the strong € 32 billion cash buffer, these give the economic policy leadership and the Public Debt Management Agency (PDMA) greater flexibility in determining borrowing policy.

In detail, the four lines of defence protecting Greece against turmoil in international bond markets - fuelled not only by French fiscal risks but also by high inflation driven by the wars in Ukraine and Iran, the ensuing rise in central bank interest rates in Europe and the US, and the pace of borrowing by artificial intelligence giants - are as follows:

Growth

Economic growth is forecast to reach 2% in 2026, almost twice the eurozone average of 0.9%. In 2027, according to the draft budget, the Greek economy is expected to grow by 2.3%, compared with an estimated 1.2% for the eurozone.
Growth has remained consistently above 2% in recent years, underpinned by rising investment, measured by gross fixed capital formation. Investment is projected to grow by 7.7% this year and 7.9% in 2027.

Primary budget surpluses

Greece is expected to maintain the strong primary budget surpluses needed to service its public debt this year and in the years ahead. The primary surplus is forecast to reach 3.6% of GDP in 2026 and 3.3% in 2027.

Significantly, Greece is also expected to record a general government budget surplus, projected at 0.6% of GDP this year and 0.3% in 2027.

Public debt

The high primary surpluses allow the Public Debt Management Agency to proceed with early public debt repayments. Last June, Greece repaid € 6.94 billion in bailout-era loans, followed by a further € 2.5 billion in early October. Another € 2.2 billion is scheduled for early repayment by the end of the year.

This policy, combined with economic growth, is expected to bring public debt down to 136.7% of GDP this year, with a further decline to 128.8% in 2027, according to finance ministry forecasts.

The target is to reduce public debt to below 120% of GDP in 2029, with a view to bringing it below 110% in 2030.

Credit rating upgrades

These factors, along with calls for faster implementation of reforms, are highlighted in reports by international credit rating agencies.

Greece’s return to investment grade, secured from all major rating agencies, and the prospect of further upgrades send a strong signal of confidence in the Greek economy, as both the Bank of Greece and the finance ministry have noted.

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