In its latest comment on Greece (05/02/2013) Fitch noted that Greece has hit its fiscal target for 2012 and posted a minor primary surplus despite economic underperformance. The deficit reduction was achieved by a combination of larger than expected cuts in primary government expenditure and private and official sector debt relief.

Fitch stressed that continued progress in reducing the fiscal deficit, coupled with comparable developments in the current account balance, indicate that the Greek economy is rebalancing. However, implementation of deeper structural reforms, including completion of financial sector restructuring and privatisation, will be necessary to restore the Greek economy to a sustainable growth path. Fitch forecasts a further contraction of 4% in GDP this year.

Greece, which had the highest peak deficit of any eurozone country, has done the most to balance its books. However, it still has a long way to go before debt starts to fall and it complies with the EU fiscal compact. Public debt sustainability remains extremely fragile, notwithstanding the provision of further official sector debt relief late last year, including further rate cuts and a debt buy-back. Fitch forecasts the overall stock of general government debt to remain high, peaking at around 179% in the near term, before falling to some 124% by 2020.