Greece’s economy remains on a positive trajectory, according to the latest Quarterly Report by the Foundation of Economic and Industrial Research (IOBE), but the outlook is clouded by a set of clear and persistent risks that could weigh on growth in the coming years.
The independent, non-profit research institute notes that while key economic indicators have improved and gross domestic product (GDP) continues to accelerate, the broader environment, both internationally and domestically, demands caution.
Global uncertainty weighs on the outlook
IOBE highlights a sharp rise in global uncertainty, driven by geopolitical and technological developments, shifting international trade relations as well as high volatility in capital markets and international energy prices. These factors are identified as major sources of risk, with the report warning that potential crises cannot be ruled out in 2026 and could have spillover effects on the Greek economy.
At the European level, economic growth is slowing, and the external environment is described as unfavorable for new investments, with IOBE expecting any new investment activity across Europe to become more selective in the period ahead.
Growth continues, but structural weaknesses persist
On the domestic front, the report acknowledges faster GDP growth and improvements in several core indicators. At the same time, it underlines long-standing structural weaknesses, including low productivity and a large external deficit.
According to IOBE, Greece’s external deficit is expected to widen further in 2026. This projection is linked to rising global trade protectionism and the strengthening of the euro, both of which are likely to put additional pressure on the country’s trade balance.
Investment support, but not a silver bullet
On the investment front, the report points to a strong rise in long-term investments, largely linked to projects funded through the EU’s Recovery and Resilience Facility (RRF) and the country’s public investment program. It also notes that investments made through the RRF will continue to provide a boost in the economy over the next two years, though they are not enough on their own to deliver the major investment boost the greek economy needs.
Household incomes under pressure
Despite gains in employment and rising nominal wages, households are still feeling the squeeze. Inflation, the report says, continues to erode real incomes and limits savings.
Price increases are most pronounced in services, particularly housing, accommodation and dining out. These pressures are keeping real purchasing power at relatively low levels.
Labor market gains slow as unemployment nears floor
Unemployment in Greece has fallen to single-digit levels, marking a significant improvement compared with previous years. However, IOBE cautions that as the economy approaches these levels, further reductions in joblessness are likely to slow.
The report also notes that labor force participation has increased steadily over time, signaling broader engagement with the job market. Even so, Greece continues to trail the European Union average, with notable gaps across specific demographic groups. Lower participation rates persist among women, young people aged 15 to 24 and older workers between 50 and 64. Disparities are also evident among individuals without tertiary education, as well as residents of small towns and suburban areas.
Banks show progress, face lingering challenges
In the banking sector, the report identifies positive developments in credit expansion and financing. Still, several challenges remain, including weak demand for housing loans, high exposure of banks to government bonds, and a large stock of non-performing loans that sit outside bank balance sheets.
Fiscal picture improves, but with caveats
On the fiscal front, IOBE notes stronger budget performance in 2025, driven largely by timing differences in revenue collection and public spending rather than structural changes. At the same time, the report draws attention to a sharp expansion of tax expenditures over the past decade, both in absolute terms and as a share of total tax revenues.
The cost of tax exemptions and deductions in Greece is estimated at 34.2% of total tax revenues, significantly higher than the 21.4% average recorded across 18 European Union countries in 2023, according to estimates from the Global Tax Expenditures Database. More than 85% of the estimated value of tax exemptions in 2024 is linked to capital taxes, corporate income tax and personal income tax.
While such measures allow for more targeted fiscal policy, the report notes that they also add complexity and reduce transparency in the tax system. Citing the Bank of Greece, IOBE argues that curbing the further expansion of tax exemptions would help support efforts to simplify Greece’s tax framework.
Overall, IOBE paints the picture of a Greek economy that is more resilient than in the past, better equipped to absorb shocks and sustain growth. Yet significant challenges remain unresolved, shaping a risk landscape that will define the next phase of the country’s economic path.
Source: ot.gr, IOBE
