Greece Remains On Growth Trajectory Despite Global Uncertainty

Greece remained on a growth trajectory, with economic activity proving resilient and slightly strengthening toward the end of 2025, supported by strong domestic demand and investment linked to the absorption of European Union funds, according to the latest European Economic Outlook report by EY.

Economic activity maintained solid momentum throughout 2025, with GDP increasing by 2.5% in the final quarter and reaching annual growth of 2.1%. Private consumption, investment and exports contributed positively, highlighting a gradual transition towards a more balanced growth model. Household spending benefited from rising employment and incomes, reflecting continued labour market normalisation and income convergence.

Inflation remained above target levels in 2025 but stayed relatively stable throughout the year. The consumer price index ranged between 1.9% and 3.1%, averaging 2.5% annually. Price pressures mainly stemmed from domestic services, while food prices also contributed to inflation. At the same time, falling energy prices partly offset overall increases. Inflation rose slightly to 2.7% in February 2026 compared with the same period in the previous year, driven primarily by food prices and hospitality services, while energy prices, particularly natural gas and heating oil, had a deflationary effect.

GDP growth in Greece was projected to stabilise at 2.1% in 2026, remaining above the Eurozone average. Growth was expected to be supported mainly by investment activity linked to projects funded through NextGenerationEU. Private consumption was forecast to slow slightly due to the impact of the conflict in the Middle East on prices.

From 2027 onwards, growth was expected to gradually normalise as investment momentum weakened following the completion of funding from the EU recovery instrument. However, the country’s improving fiscal position was expected to help mitigate pressures caused by energy costs for households and businesses, while supporting domestic demand and co-financing investment.

Inflation in Greece was forecast to reach 3.0% in 2026 as the Middle East conflict exerted upward pressure on energy prices. Core inflation was expected to ease but remain above 2% due to persistent pressures in services prices. Inflation was projected to fall to 2% in 2027 following a reversal of the energy shock, before rising again in 2028 due to higher energy costs linked to the implementation of the Emissions Trading System 2.

The Greek economy was expected to outperform the Eurozone, supported by stronger investment momentum and domestic demand. Eurozone growth reached 1.4% in 2025, influenced significantly by Ireland’s strong GDP expansion of 12.3%. Excluding Ireland, Eurozone growth stood at around 1.0%, exceeding 0.8% recorded in 2024.

Private consumption and public spending slowed in recent quarters, weighing on overall growth, while lower interest rates began supporting investment recovery. Despite US tariffs, exports showed signs of growth, although the strengthening euro and reduced competitiveness compared with China continued to affect Europe’s share of global trade.

Eurozone GDP growth was expected to slow to 1.0% in 2026 due to the impact of the Middle East conflict on investment sentiment and energy prices, before rising to 1.5% in 2027 and 1.6% between 2028 and 2029.

Core inflation in the Eurozone remained close to 2%, although outcomes varied between countries due to differences in wage increases, regulated prices and taxation. Inflation was expected to average 2.4% in 2026 due to higher energy prices, before slowing in 2027 as commodity prices declined.

The European Central Bank maintained its deposit interest rate at 2.0% since June 2025. Rates were expected to remain stable unless the Middle East conflict caused prolonged increases in energy prices.

Economic prospects for Europe in 2026 remained overshadowed by uncertainty. Key risks included geopolitical tensions in the Middle East, trade tariffs and adverse demographic trends, while fiscal policy measures and increased adoption of artificial intelligence were expected to support growth.

Escalating hostilities in the Middle East represented a major geopolitical risk affecting oil and natural gas prices, investor confidence and global capital flows. The duration and intensity of the conflict were expected to influence inflation and GDP growth in Greece, although current data suggested the impact on growth would remain limited due to the country’s relatively low dependence on energy-intensive industries.

A more adverse scenario involving prolonged disruption to shipping through the Strait of Hormuz and oil prices remaining above $100 per barrel could increase inflation in Greece by 2.9 percentage points in 2026. Reduced disposable income and weakened confidence among businesses and households could lead to a 1.2% decline in GDP by 2027 compared with pre-conflict forecasts.

Trade policy also remained a source of risk. Despite a US Supreme Court ruling that deemed some previous tariffs unlawful, the US administration imposed a base tariff of 10%, expected to rise to 15%. The impact on Europe was expected to be limited, while Greece’s relatively low trade exposure to the United States placed it among the least affected economies, with an estimated impact of just 0.2 percentage points on GDP.

Europe also faced structural competitiveness challenges, including higher costs and an ageing workforce. Demographic pressures were expected to influence long-term growth potential and resilience to external shocks, particularly in Greece, which faced one of the fastest declines in working-age population in Europe.

The report highlighted the importance of strategic investment in productivity-enhancing technologies, including artificial intelligence. Greece remained among EU countries with lower levels of AI adoption, partly due to the large share of small and medium-sized enterprises, underscoring the need for policies supporting business modernisation, scaling and workforce skills development.