Greece is expected to grow by 2.1% in 2024 and to maintain broadly similar growth in 2025 and 2026, supported by the implementation of the Recovery and Resilience Plan (RSP), notes the Commission in the autumn economic forecasts that he released today.

According to the report, unemploymentnow below 10%, is expected to continue to decline, but at a slower rate than in the past. THE inflation forecast at 3.0% in 2024 and is expected to moderate gradually to around 1.9% by 2026.

At the same time, the general government deficit is expected to continue to decline due to moderate spending growth. Along with the steady increase in nominal GDPthis contributes to a steady reduction of public debt to GDP close to 140% of GDP by 2026.

In more detail, the Commission’s report notes:

Growth will remain strong

The Greek economy recorded steady growth of 2.1% year-on-year in the first half of 2024, mainly thanks to domestic demand, while net exports were a drag on growth. After the minimum wage increase, private consumption benefited from relatively faster wage growth in low-income households. Investment in equipment accelerated while increased imports accompanied by sluggish export growth caused net exports to decline. Thanks to strong domestic demand, real GDP growth is expected to average 2.1% in 2024.

Going forward, private consumption will continue to expand at a strong pace, supported by steady real income growth. Investment is projected to accelerate further, peaking near 9% in 2025, as implementation of the SAA increasingly shifts from reforms to investment and financing conditions improve. The recovery in external demand is expected to benefit export growth, further supported by structural reforms aimed at improving export performance. Import growth is forecast to remain strong. Overall, the GDP growth rate is expected to remain above the long-term growth potential and is projected to be 2.3% and 2.2% in 2025 and 2026, respectively.

Structural challenges may limit further labor market improvement

The employment rate rose to 54.9% in seasonally adjusted terms in the second quarter of 2024, but remains one of the lowest in the EU. The unemployment rate fell to 9.5% in August, remaining one of the highest in the EU. vacancy rate increased further in the first half of 2024, especially in construction, tourism and highly skilled sectors. Employment growth is expected to continue, albeit at a slower pace, as skills mismatches and structural difficulties, including the lack of child and elderly care solutions or the tight regulatory framework for part-time work, limit growth job offer. The unemployment rate is projected to fall to around 9.0% by 2026, the lowest level in a decade. Real wages per worker are expected to increase by an average of 1.1% annually over the forecast horizon, also supported by the decline in social security contributions.

Inflation will continue to decline but at a slower pace

Inflation averaged 3.1% year-on-year in the third quarter of 2024, about 1 percentage point above the Eurozone average. Deflation was restrained by the strengthening of service prices, the impact of the 2023 floods on food prices and the recent rise in electricity prices. Inflation is expected to continue its decline in the fourth quarter of 2024, but wage pressures fueled by growing labor shortages and minimum wage increases will put upward pressure on prices going forward. Headline inflation is forecast at 3.0%, 2.4% and 1.9% in 2024, 2025 and 2026 respectively. Core inflation – which excludes volatile energy and food prices – is forecast to remain higher, at 3.4%, 2.7% and 2.0% in 2024, 2025 and 2026 respectively.

The public debt ratio is expected to shrink amid an improvement in the fiscal balance

The overall deficit is expected to decrease from 1.3% of GDP in 2023 to 0.6% of GDP in 2024reflecting an increase in the primary surplus from 2.1% of GDP in 2023 to 2.9% of GDP this year. This decrease is largely due to the moderate increase in current expenditure and the increase in income tax revenues.

TIn 2025, the overall deficit is expected to further decrease to 0.1% of GDP. This forecast takes into account the better execution of the 2024 budget, as well as a series of new fiscal measures announced this year with a net impact of 0.2% of GDP. On the expenditure side, public sector wages are expected to increase in April 2025 to bring the basic wage in the public sector in line with the minimum wage in the private sector. On the revenue side, the rate of social security contributions is to be reduced by 1 percentage point and an increase in the hotel night tax has been announced.

In 2026, the general government balance is expected to turn into a surplus of 0.2% of GDPamid favorable macroeconomic developments. This improvement is expected to come from an increase in tax revenues and social security contributions that compensate for increased spending on pension benefits and salaries in the public sector.

The public debt-to-GDP ratio has been declining in recent years and is expected to reach 153.1% of GDP in 2024, and later decline further to 146.8% of GDP in 2025 and 142.7% in 2026.

The fiscal outlook remains subject to country-by-country risks. Downside risks arise from the pending legal cases, mainly from the court cases with ETAD. On the other hand, the government’s efforts to increase tax compliance through digitization may yield higher revenues in 2025.

Economic forecasts for Greece

You can see the Commission’s report in detail here.