GDP is projected to grow by 2.3% in 2024, 2.2% in 2025 and 2.5% in 2026. Rising disposable income will strengthen consumption, as a tight labour market and minimum wage increases support wages. Employment growth is projected to ease progressively amid rising labour costs. Disbursements of EU Recovery and Resilience funds will support a spike in investment. Inflation is expected to reach 2% in late 2026 amid persistent services and core inflation. Implementation delays in spending EU funds, excessive wage growth or renewed extreme weather events could dampen the outlook.

Keeping public debt on a firmly declining path should remain a priority, as ageing costs and investment needs will add to future spending pressures. Improving further the efficiency of public spending and shifting its structure towards education, health care and investment would support growth and equity, while helping to achieve sustained primary surpluses. Limiting tax expenditures, notably for fossil fuels, and continuing efforts to combat tax evasion would also raise revenues and make room to reduce the labour tax burden for low-wage earners, encouraging further employment gains.

Real GDP grew by 1.6% in the year to the second quarter of 2024, driven by robust gross capital formation and consumption. Business expectations in manufacturing and services continued to point towards expansion in September. Employment rose by 1.6% in the year to September 2024, while nominal wages grew by 8.6% in the year to the second quarter of 2024, as labour shortages remain at historically high levels. Annual headline inflation was persistent at 3.1% in October 2024 and core inflation stood at 4.3%, driven by services inflation.

Business lending has increased, and the decline in housing loans has slowed amid improving but still tight financial conditions. Lending to non-financial corporations from January to September 2024 was 54% higher than a year earlier. Interest rates for new loans to households and firms fell from 6.2% in January 2024 to 5.4% in September. The trade deficit has widened, reflecting growth of imports, particularly of investment goods outpacing that of exports, though tourism receipts remained strong. Travel receipts over the first half of 2024 were 12% higher than a year earlier, while goods exports were 3.9% lower.

The fiscal stance will remain supportive, as disbursements of Recovery and Resilience grants and loans are projected to rise from 1.8% of GDP in 2024 to 3.6% in 2026. Growing revenues, reflecting high nominal GDP growth, improved tax collection and the new cruise fee will help to maintain primary surpluses, despite additional expenditures and tax cuts. A primary surplus of 2.4% of GDP in 2025 and 2026 will contribute to a further decline in the debt-to-GDP ratio to 148.1% in 2026 (Maastricht definition). A reduction in social security contributions (0.2% of GDP) and the indexation of pensions (0.2% of GDP) will support incomes in 2025. Public sector wages, previously frozen, will also be raised to align with future minimum wage increases. The minimum wage rose by 42% from 2018 to April 2024 and is set to increase further by around 4.6% in both 2025 and 2026.

GDP growth is projected to improve from 2.3% in 2024 to 2.5% in 2026. Consumption growth will pick up gradually with rising disposable incomes. Growing disbursements of Recovery and Resilience Funds, combined with improving financial conditions, will boost investment. Employment growth will moderate with rising labour shortages. Rising wages will slow the decline in inflation towards 2% in 2026 and could hold back low-wage employment. Possible implementation delays of the Recovery and Resilience Plan “Greece 2.0” could put the planned investment growth at risk. If wage growth were to persistently outpace productivity gains, this could weaken exports. Extreme weather events, such as last year’s floods in Thessaly, could also weigh on domestic demand.

High public debt makes achieving sustained primary surpluses a priority. However, demographic change and climate change will add to domestic spending pressures. Moreover, more public investment will need to be financed through the national budget after the end of the Recovery and Resilience Plan in 2026. Rising labour-market shortages, despite relatively high unemployment, point to increasing skills mismatches that could weigh on growth prospects and could be addressed by strengthening vocational training, rebalancing labour-market policies towards training and counselling for unemployed workers, and ensuring high training quality. More efficient public spending, a broadening of tax bases and further productivity-enhancing reforms are key to boost growth and maintain debt on a firmly declining path. Gradually shifting public spending towards education and health care, building on regular spending and public investment reviews, while containing staff expenditures and maintaining efforts to reduce pension expenditures as a percentage of GDP, would raise growth and equity. Further reducing tax evasion and limiting tax expenditures - notably reduced VAT rates, which mostly benefit more well-off households - would raise revenue, making room for targeted social contribution cuts for lower wage earners.