Bank of Greece: US–Iran Agreement Strengthens Optimistic Outlook for Greek Economy

The recent agreement between the United States and Iran is creating new expectations for stability in global energy markets and, consequently, for the Greek economy. In its latest Monetary Policy Report, the Bank of Greece argues that easing tensions in the Middle East could lead to a more favorable economic scenario than its baseline forecast.

“A faster decline in international oil and natural gas prices would improve real macroeconomic indicators and reduce inflationary pressures,” the central bank notes.

Key Figures Under the Favorable Scenario

According to the Bank of Greece’s projections:

GDP Growth

• 2.0% in 2026
• 2.1% in 2027
• 2.1% in 2028

Inflation (HICP)

• 3.7% in 2026
• 2.5% in 2027
• 2.2% in 2028

While the differences compared to the baseline scenario may appear modest, they become particularly significant at a time of heightened global uncertainty and fragile energy markets.

Growth Expected to Outpace the Eurozone

The Bank of Greece expects the country to continue growing faster than the euro area average over the coming years.

Under its baseline forecast:

• 1.9% GDP growth in 2026
• 1.9% GDP growth in 2027
• 2.0% GDP growth in 2028

Economic expansion is expected to be driven primarily by:

• Private consumption

• Investment

• Exports of goods and services

The report highlights the resilience of the Greek economy despite weaker growth prospects across Europe and ongoing geopolitical tensions.

Recovery Fund Continues to Drive Investment

Particular emphasis is placed on the role of the Recovery and Resilience Facility (RRF).

According to the central bank:

• Approximately 60% of funds already received have been channeled into the real economy.
• Investments are projected to increase by 5.5% in 2026.

The Bank of Greece argues that efficient utilization of European funds remains essential to narrowing the country’s longstanding investment gap compared with the European average.

Inflation Remains a Major Concern

Despite positive growth prospects, inflation continues to be a challenge.

The report forecasts inflation at:

• 3.8% in 2026
• 2.6% in 2027
• 2.3% in 2028

The upward revision compared with the March forecast reflects:

• Higher energy costs,
• Persistent services inflation,
• Ongoing international price pressures.

“Geopolitical developments remain the most significant source of risk for the inflation outlook,” the report stresses.

Risks Clouding the Outlook

While presenting a positive narrative, the central bank is clear about the risks facing the economy.

The main downside risks include:

• Prolonged instability in the Middle East.
• Secondary inflation effects on wages.
• Labor market shortages.
• Lower-than-expected absorption of RRF resources.
• Delays in structural reforms.
• The impact of climate change and natural disasters.

“Risks to economic growth remain tilted to the downside, while risks to inflation remain tilted to the upside,” the Bank of Greece warns.

The Challenge of the Post-RRF Era

One of the report’s most important policy messages concerns Greece’s transition beyond the Recovery Fund period.

The Bank of Greece cautions that the growth momentum generated by European funding cannot be taken for granted.

The country will need to make effective use of:

• Future EU structural funds (ESPA),
• The next Multiannual Financial Framework,
• Private capital and productive investments.

Without these resources and reforms, maintaining strong growth rates could become increasingly difficult.

Demographics and Weak Purchasing Power

The central bank identifies Greece’s demographic crisis as perhaps the most serious long-term challenge facing the economy.

Low birth rates, population aging and a shrinking workforce are expected to weigh on:

• Productivity,
• Investment,
• The sustainability of the pension system,
• Long-term economic growth.

At the same time, the report highlights the continued weakness of household purchasing power.

Although employment and nominal wages have risen, persistent increases in:

• Housing costs,
• Food prices,
• Energy bills,
• Service-sector prices,

have limited improvements in real incomes.

As a result, many households are experiencing negative savings rates, while domestic savings available to finance investment remain constrained.

Message to Policymakers

The Bank of Greece calls for prudent fiscal management and continued commitment to structural reforms.

“Support measures for households and businesses should be targeted, temporary and fiscally sustainable,” the report states.

The central bank also advocates:

• Faster structural reforms

• Stronger market competition

• Reduction of regulatory and administrative barriers

• Promotion of innovation and the green transition

The report concludes that Greece has a unique opportunity to transform the growth achieved in recent years into a more productive, export-oriented, innovative and resilient economic model capable of sustaining prosperity well beyond the Recovery Fund era.

Key Numbers at a Glance

Bank of Greece Sees Stronger Growth and Lower Inflation if US–Iran Deal Holds

Central bank says easing geopolitical tensions could improve Greece’s economic outlook, while warning that inflation, demographics and the post-Recovery Fund transition remain critical challenges.