Fitch lowers Greece credit outlook to 'negative'

[WASHINGTON] Rating firm Fitch on Friday lowered Greece's credit outlook to negative from stable, citing rising political uncertainty, but kept the country's credit rating unchanged at 'B', indicating highly speculative.

"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," Fitch said in a statement.

"Early elections to be held on 25 January have made the direction of Greek policymaking more uncertain." Greece had been expected to exit recession after six years of economic distress, with the help of two international financial rescues.

But the government called the January 25 snap general election amid political gridlock, raising concerns that a victory by the leftist Syriza party will force Greece to renegotiate its bailout with the so-called "troika": the European Commission, the European Central bank and the International Monetary Fund.

"Prolonged political deadlock until the summer is not Fitch's expectation, but would increase the risk of financing difficulties and a return to recession," the agency said.

Fitch acknowledged that opinion polls show that a Syriza victory in the election was the most likely outcome, but pointed to "strong incentives" for a new Greek government and the troika to reach an agreement.

"Nevertheless, there is a wide gap between the policy proposals of both sides, such that negotiations would be complicated and subject to risks," it said.

The company noted that Syriza had moderated its policy stance since 2012, and advocates keeping Greece in the eurozone and honoring the embattled country's obligations to the IMF and private creditors.

"However, the privatisation program would most likely stall under a Syriza-led government and there would be upward pressure on the public sector wage bill," it said.

Fitch said it had maintained Greece's 'B' credit rating in part because the government's budget is on track to meet its 2014 objective, "underscoring a remarkable budgetary adjustment in recent years in the face of severe cyclical headwinds."

Fitch forecast gross domestic product growth of 0.5 per cent for Greece in 2014, accelerating to 1.5 per cent in 2015, a tenth point lower than its November forecast, citing domestic political uncertainty and a weaker growth outlook in the eurozone.

The 'B' rating reflects weak "standalone" creditworthiness, as Greek banks are well-capitalised but their asset quality is weak, the company said.

AFP