The recent agreement between the U.S. and Iran raises hopes for an end to hostilities and a de-escalation of energy prices.
This development supports the likelihood of a more favorable scenario for the Greek economy compared to the baseline forecast, as stated in the report of the Monetary Policy of the Bank of Greece.
According to the report, inflation under the most favorable scenario is projected to decline slightly, and real macroeconomic indicators are improving compared to the baseline forecast, as a faster decline in international prices for both oil and natural gas is expected. According to the scenario outlined here, the GDP growth rate of the Greek economy is projected to be 2.0% in 2026, 2.1% in 2027, and 2.1% in 2028, while HICP inflation is projected to stand at 3.7% in 2026, 2.5% in 2027, and 2.2% in 2028.
However, it is noted that the realization of the more favorable scenario depends to a large extent on the consistent implementation of the U.S.-Iran agreement-Iran agreement and the full restoration of energy flows.
The Bank of Greece report, forecasts continued growth, a decline in inflation, high primary surpluses, and a further reduction in public debt. The Greek economy is expected to continue growing at rates higher than the eurozone average, supporting the process of real income convergence. Specifically, GDP growth is projected to reach 1.9% in 2026 and 2027, while it will strengthen marginally to 2.0% in 2028. Growth is expected to be driven mainly by private consumption, investment, and exports, despite increased uncertainty in the international economic environment. In the short term, investment is projected to continue to be supported by TAA funds, as approximately 60% of the funds collected to date have been channeled into the real economy. As a result, investment is estimated to grow by 5.5% in 2026, while in the medium term it is expected to continue contributing positively to reducing the investment gap in the Greek economy.
Inflation, as measured by the Harmonized Index of Consumer Prices (HICP), following a temporary spike due to international energy developments and inflationary pressures, is projected to gradually ease over the forecast period. Specifically, it is estimated to stand at 3.8% in 2026, up from 2.9% in 2025, before falling to 2.6% in 2027 and 2.3% in 2028, as pressures on energy and food prices are expected to gradually ease. The Bank of Greece’s upward revision of its inflation forecast for 2026, compared with its previous March projections, mainly reflects the expected rise in the energy and services components. In 2028, the implementation of the expanded European Emissions Trading System (ETS2) is projected to maintain some upward pressure on the prices of energy and non-energy industrial goods.
The risks surrounding the Bank of Greece’s current forecasts for economic growth remain broadly downside and are mainly related to exogenous factors. In particular, risks to the outlook for the Greek economy include the prolonged nature of geopolitical tensions in the Middle East, the persistence of higher inflationary pressures and their potential spillover effects on wages, prolonged tightness in the labor market and stronger wage pressures, lower-than-expected absorption of RRF funds, slower implementation of reforms, and the impacts of the climate crisis through natural disasters. At the same time, inflation risks remain on the upside and are mainly linked to geopolitical developments
The key challenge for the coming years, according to the Bank of Greece, is maintaining the economy’s growth momentum in the post-RRF era. The significant boost provided by European funds in recent years has contributed decisively to increased investment and improved economic activity. However, the critical challenge now is the effective utilization and mobilization of the available European funds for the next period—through the NSRF and the new Multiannual Financial Framework.
The demographic crisis is perhaps the most profound structural challenge facing the country. Low birth rates, an aging population, and a shrinking labor force are expected to negatively impact growth, investment, productivity, and the sustainability of the social security system.
At the same time, low household purchasing power continues to limit the potential for a substantial improvement in living standards. Although employment and nominal incomes have risen, high inflation in recent years—particularly in housing, energy, food, and service prices—has held back the growth of real incomes.
This pressure is driving many households into negative net savings and reduces domestic savings that could finance investment and growth. At the same time, the persistence of relatively high rates of poverty and social exclusion suggests that economic progress may not be spreading equally across all social strata.
The Bank of Greece recommends that economic policy in the coming years focus on transitioning the Greek economy to a more productive, outward-looking, innovative, green, and resilient development model, through a coherent framework of reforms and investments.
In the short term, prudent fiscal policy is required that will complement the ECB’s monetary policy without exacerbating inflationary pressures. Any measures to support households and businesses should be targeted, temporary, and fiscally sustainable, while at the same time, controls must be intensified to ensure healthy competition in the markets. In the medium term, strengthening competition by removing regulatory and administrative barriers is a key tool for containing price pressures and improving competitiveness.
