A severe regional energy price shock will slow Greece’s economic growth and drive up inflation through 2026, according to the European Commission’s Spring Economic Forecasts released on Thursday.
The Commission revised Greece’s GDP growth downward to 1.8% for 2026 (down from the 2.2% projected last autumn) and forecasts a further slight moderation to 1.6% in 2027. Despite the slowdown, Greece’s economic activity is expected to remain comfortably above the EU and eurozone averages.
The Middle East energy shock
The economic cooling is primarily attributed to geopolitical conflicts in the Middle East. As a net energy importer, the broader EU economy has been left highly vulnerable to its second major energy shock in less than five years.
Across the eurozone, growth forecasts were downgraded to 0.9% for 2026 and 1.2% for 2027. The wider EU is expected to see GDP growth slow to 1.1% this year before recovering to 1.4% next year.
Inflationary pressures and household impact in Greece
The surge in energy costs is severely eroding real household disposable income in Greece, dampening consumer spending. Consequently, the Commission significantly adjusted Greece’s 2026 inflation forecast upward by 1.4 percentage points, predicting it will hit 3.7% this year before easing to 2.4% in 2027.
Crucially, “core inflation”—which excludes volatile energy and food prices—is projected to remain stubborn as the initial energy shock spills over into non-energy goods and services, exacerbated by wage pressures stemming from persistent labor shortages.
To combat these headwinds, Athens introduced an expansionary fiscal package including personal income tax cuts, public sector wage hikes, and direct energy subsidies. While these measures will partially mitigate the blow to consumers, they are expected to fuel strong import demand due to Greece’s structural import dependencies.
Silver linings: EU funds and debt deduction
Despite the headwinds, the report highlighted two major pillars of resilience for the Greek economy:
Strong Investment Pipeline: Investment activity will remain a primary growth engine, heavily buttressed by the ongoing, aggressive absorption of EU funds under the Recovery and Resilience Facility (RRF). However, when the RRF implementation cycle concludes in 2027, investment growth is expected to decelerate.
Exemplary Fiscal Health: Greece continues to maintain a favorable fiscal position. Driven by robust nominal GDP growth and consistent primary budget surpluses, Greece’s debt-to-GDP ratio is projected to decline steadily, approaching 134% by the end of 2027.
Labor market structural hurdles
Greece’s labor market showed continued resilience, with the unemployment rate dropping to 8.4% in late 2025—its lowest level since 2008. Job vacancies remain high, particularly in the vital tourism and construction sectors.
However, the long-term unemployment rate hovers near 5%, marking the highest in the EU. This persistent figure underscores entrenched structural challenges, notably severe skills gaps and a lack of adequate childcare and elderly care infrastructure to support workforce reintegration.
Looking forward, the Commission warned of lingering downside risks, noting that a prolonged regional energy crisis could ultimately depress service exports, with tourism being the most exposed vulnerability.
For the European Commission’s Spring 2026 Economic Forecast follow the link
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