Moody's Raised the Rating Two Notches, Saying the Nation's Economy Is 'Bottoming Out'

By Michael Calia, Wall Street Journal

Moody's Investors Service on Friday upgraded Greece's government bond rating, saying the nation's economy is "bottoming out."

Moody's said it raised the rating two notches to Caa3 from C, with a stable outlook. The rating remains in the "not prime" tier of Moody's scale.

The upgrade comes a couple of days after the Paris-based Organization of Economic Cooperation and Development said Greece would continue to be mired in a recession next year, despite "substantial progress" in its fiscal and economic reforms. The group said it expects Greece's economy to contract by 0.4% in 2014, more optimistic than its previous forecasts.

Weeks ago, however, Greece's government and its so-called troika of creditors—the European Commission, the International Monetary Fund and the European Central Bank—said they expected the Greek economy to return to modest growth next year.

Moody's on Friday said it was moved to upgrade the Greek government bond rating due to "significant fiscal consolidation" in the face of low growth and political murkiness, as well as a reduction in the government's interest load.

Additionally, Moody's said, Greece's economic outlook is looking rosier in the medium term.

There is "evidence that the Greek economy is bottoming out after nearly six years of recession, and that the combination of cyclical factors and the implementation of structural reforms are leading to a gradual improvement in medium-term growth prospects," the firm said.

Moody's said it expects the Greek economy to contract by 0.5% next year, followed by 1% growth in 2015.

Continued reduction of debt levels and structural reforms to support economic growth, along with improvement in the political picture, could drive the rating up, Moody's said, although a "deceleration in the implementation of the Troika economic program" could limit growth prospects and put the rating at risk for downgrade.

Greek Finance Minister Yannis Stournaras on Friday said a deal between Greece and the troika for a 1 billion-euro installment of loans has been delayed, but he said the parties "aim to finish this by the end of the year," Agence France-Presse reported.