EU Sees Positive Growth for Greece but Warns of Ongoing Inflation Risks

Paolo Gentiloni, European Commissioner for Economy, presenting the Autumn 2024 Economic Forecast. Photo source: European Commission

The European Commission has projected steady GDP (gross domestic product) growth for Greece’s economy, forecasting a 2.1 percent expansion in 2024, followed by 2.3 percent in 2025 and 2.2 percent in 2026. This positive outlook is primarily driven by the ongoing implementation of Greece’s Recovery and Resilience Plan (RRP). However, inflation remains a significant challenge, which could dampen the pace of recovery.

“Economic developments are important, but inflation remains high,” said EU Economy Commissioner Paolo Gentiloni while presenting the report.

Inflation concerns

According to the Autumn 2024 Economic Forecast, inflation in Greece is expected to remain high at 3.0 percent in 2024, before gradually easing to 2.4 percent in 2025 and 1.9 percent in 2026. While inflation is predicted to slow down towards the end of 2024, persistent upward pressures from rising wages, labor shortages, and minimum wage increases could keep inflation elevated longer than expected.

Even excluding food and energy, core inflation is projected to remain relatively high, with rates of 3.4 percent in 2024, 2.7 percent in 2025, and 2.0 percent in 2026.

Income and employment outlook

Despite inflation, Greece’s economic fundamentals remain strong, with robust growth in private consumption. Real wages are expected to increase by 1.1 percent annually through 2026, supported by a reduction in social security contributions.

The unemployment rate, which stood at 9.5 percent in August 2024, is projected to fall gradually to around 9.0 percent by 2026, marking its lowest level in a decade. While employment is set to continue growing, the pace of growth is expected to slow due to factors such as skills mismatches and structural challenges in the labor market, including limited childcare and eldercare solutions and rigid part-time work regulations.

Fiscal outlook: Deficits and debt reduction

Greece’s public sector deficit is expected to continue decreasing. The deficit is projected to shrink from 1.3 percent of GDP in 2023 to 0.6 percent in 2024, reflecting a rise in tax revenues and controlled public spending. By 2025, the deficit is forecasted to fall to just 0.1 percent of GDP. Additionally, with solid GDP growth and declining interest rates, Greece’s public debt-to-GDP ratio is set to decline to around 140 percent by 2026.

Source: European Commission

Investment and export growth

Investment in Greece is forecasted to accelerate, peaking at nearly 9 percent in 2025, as the focus of the RRP shifts towards investments. This will be further supported by improvements in financing conditions. Additionally, Greece’s improved cost competitiveness and ongoing structural reforms are expected to drive export growth, with external demand benefiting the country’s trade balance.

However, imports are also projected to remain strong due to the high import content of investment.

Risks and future prospects

While the economic outlook is generally positive, there are risks that could affect Greece’s fiscal stability. Legal cases, particularly those involving the Public Properties Company (ETAD), remain a downside risk, while efforts to enhance tax compliance through digitalization may boost revenues starting in 2025.

On the expenditure side, public sector salaries are expected to rise in April 2025 to align them with the private sector minimum wage. In addition, a reduction in social security contributions and a planned increase in the overnight tax for hotel stays will impact the fiscal landscape in the coming years.

EU Economic Outlook: Moderate growth amid inflation challenges

The European Commission forecasts 1.4 percent growth for the EU in 2024, driven by strong domestic demand and inflation control improvements.

However, inflation remains above target, posing risks to long-term stability. The Commission emphasizes the need for balanced fiscal policies to support recovery while managing external risks, such as energy price fluctuations and supply chain disruptions.

“The European economy is slowly recovering,” EU Economy Commissioner Paolo Gentiloni said. “While inflation continues to ease, growth is set to gradually accelerate, though structural challenges and geopolitical uncertainty still weigh on prospects.”

He also stressed the importance of investment and reforms to boost competitiveness and sustain growth.