The Bank of Greece Report on Monetary Policy 2025-2026
23/06/2026 - Press Releases
Today, in accordance with its Statute, the Bank of Greece submitted its Report on Monetary Policy 2025-2026 to the Speaker of the Greek Parliament and to the Cabinet.
Global economic slowdown, rising inflation and increased geopolitical uncertainty
In 2026, the global economy faces a new period of heightened uncertainty and elevated geoeconomic risks, following a succession of unpredictable disruptions in recent years. The escalation of tensions in the Middle East and the disruption of global energy flows resulting from the closure of the Strait of Hormuz have triggered a sharp increase in international energy prices, weighing on growth prospects and reigniting inflationary pressures worldwide. At the same time, the persistence of high US tariffs, the increasing use of non-tariff barriers and the ongoing shifts in global supply chains are further amplifying uncertainty and constraining global trade growth. More recently, the US-Iran agreement has raised hopes for an end to hostilities, thereby leading to a moderation in energy prices. However, its effectiveness will ultimately depend on consistent implementation and the full restoration of energy flows.
Despite the resilience of the euro area economy over the past year amid significant trade tensions, the deterioration of the geopolitical environment and the new energy crisis are expected to weigh on short-term growth prospects in 2026, given the euro area’s status as a net energy importer. The surge in international energy prices, compounded by heightened uncertainty, is denting consumer and business confidence, dampening domestic demand and adding to inflationary pressures. In the first quarter of 2026, euro area GDP contracted by 0.2% quarter-on-quarter, after growing by 0.2% in the fourth quarter of 2025. At the same time, headline inflation, as measured by the Harmonised Index of Consumer Prices (HICP),rose further to 3.2% in May 2026, from 3.0% in April and 2.6% in March, moving once again above the ECB’s medium-term target after a prolonged period of disinflation. Against this backdrop, in June 2026 the Governing Council of the European Central Bank (ECB) decided to raise its three key policy rates by 25 basis points.
Greek economy: Resilient growth and rising inflation
In the first quarter of 2026, the Greek economy continued to expand at a solid pace. GDP grew by 2.0% year-on-year and by 0.2% quarter-on-quarter, significantly outperforming the euro area average. Investment remained the main driver of growth, while net exports and private consumption also made positive contributions. These developments underscore the resilience of the Greek economy and its sustained growth momentum, despite heightened uncertainty stemming from geopolitical tensions in the Middle East and the resurgence of inflationary pressures.
During the first five months of 2026, the expected further disinflation from the 2.9% rate recorded in December 2025 was interrupted by the geopolitical crisis in the Middle East and the sharp increase in international energy prices. As a result, HICP inflation accelerated to 4.9% in May, from 3.1% in February, remaining well above the euro area average of 3.2%. Higher energy costs are expected to generate second-round effects on both services and industrial goods prices. Food inflation is also expected to remain elevated, mainly reflecting higher energy-related costs across the production, storage and transportation chain.
Fiscal developments: Strong fiscal performance and continued debt reduction
Following the exceptionally strong fiscal performance recorded in 2024, fiscal outcomes remained highly favourable in 2025. According to available data, the general government balance turned out at a surplus of 1.7% of GDP in 2025, up from 1.3% in 2024, while the primary balance reached a historically high surplus of 4.9% of GDP, significantly exceeding the Budget target of 3.7% of GDP. This outcome primarily reflects stronger-than-expected revenue performance, particularly from VAT, individual income tax and social security contributions, supported by improved tax and social security compliance through the expansion of electronic transactions, the wider use of digital tools and the further rollout of the digital labour card. At the same time, prudent expenditure management contributed to the stronger fiscal outcome, creating additional fiscal space for targeted support measures from 2026 onwards.
The public debt-to-GDP ratio continued its downward trajectory, declining to 146.1% in 2025 from 154.2% in 2024, which was the largest reduction among EU Member States. This improvement was driven primarily by high primary surpluses and robust nominal GDP growth.
Financial developments: Tighter global financial conditions – Sustained investor confidence in Greek bond and equity markets
Global financial conditions have tightened since the beginning of 2026, mainly reflecting heightened geopolitical uncertainty stemming from the conflict in the Middle East and renewed inflationary pressures driven by higher international energy prices. Financial markets have revised upwards their expectations for inflation and policy rates, leading to increased volatility in global bond and equity markets and a broad tightening of financial conditions.
Despite the challenging international environment, the Greek government bond market has remained notably resilient. Sovereign credit rating upgrades, sustained high primary surpluses and the continued decline in public debt have whetted investor demand for Greek government securities. As a result, Greek government bond yields, while moving broadly in line with higher European yields, have continued to compare favourably with those of other euro area sovereigns, with the increase in yields effectively reflecting spillovers from international market developments. At the same time, improvements in Greece’s sovereign credit profile continued to support upgrades in bank credit ratings, reducing funding costs for Greek systemic banks and facilitating their access to international capital markets.
The Greek equity market also recorded strong gains in early 2026. The robust performance of the Athens Exchange (ATHEX) reflected the strong performance of sectors linked to the real economy, increased participation by international investors, successive credit rating upgrades and the continued improvement in the overall investment climate. These developments also contributed to the further upgrading of the Greek equity market’s international classification.
Banking sector: Volatile interest rates and robust credit growth
Interest rates on term deposits broadly stabilised during the fourth quarter of 2025 and the first four months of 2026, reflecting the unchanged policy rates of the Eurosystem over the same period. Following an increase of EUR 10.4 billion in private sector deposits in 2025, the stock of deposits declined cumulatively by EUR 3.6 billion during the first four months of 2026, reaching EUR 209.6 billion in April 2026.
After declining significantly, interest rates on business loans were highly volatile in the fourth quarter of 2025 and during the first four months of 2026. The weighted average interest rate on total business loans stood at 4.5% in April 2026, as much as on business loans with a defined maturity. The cost of bank financing was significantly reduced through programmes of the European Investment Bank (EIB) Group and the Hellenic Development Bank (HDB) as well as through RRF co-financing loans, an effect that is not fully captured by the reported lending rates. It is estimated that one third of new business loans and one fourth of lending to small and medium-sized enterprises are supported by development bank financing instruments and/or the RRF. For households, the weighted average mortgage lending rate declined slightly to 3.3% in April 2026, while around 30% of new mortgage loans granted in early 2026 was linked to the co-financed “My Home II” and “Upgrade My Home” programmes, which provide interest-free or low-interest financing.
Credit growth to non-financial corporations (NFCs) remained strong, although it moderated from the high levels recorded a year earlier. Bank lending to NFCs grew by 9.5% year-on-year in April 2026, down from 17.2% in April 2025. Continued robust lending to NFCs reflects both sustained demand for business credit and the supportive lending policies of banks. Bank lending to households also continued to expand year-on-year in early 2026, reflecting stronger consumer credit growth and a further acceleration in mortgage lending, supported primarily by rising house prices and increased private consumption.
Banking system: Strong fundamentals and enhanced resilience
Greek banks continued to perform strongly during the first months of 2026, maintaining solid profitability, capital adequacy and liquidity positions. The resilience of the Greek economy, despite ongoing geopolitical tensions and heightened uncertainty in the international environment, supported the continued strength of the banking sector. At the same time, Greek banks’ asset quality improved further, narrowing the gap with the European average. The sector’s strong performance is also reflected in the continued upgrades of banks’ credit ratings by international rating agencies. As a result, the four significant Greek banks are now rated BBB+, just one notch below the A rating category.
Projections
According to the latest projections of the Bank of Greece, the Greek economy is expected to continue expanding at a pace above the euro area average, supporting the ongoing convergence of real incomes. Real GDP growth is projected at 1.9% in both 2026 and 2027, before strengthening slightly to 2.0% in 2028. Economic activity is expected to be driven primarily by private consumption, investment and exports, despite heightened uncertainty in the global economic environment.
HICP inflation, following its temporary acceleration in response to higher energy prices and renewed inflationary pressures, is expected to gradually moderate over the projection horizon. Specifically, inflation is projected to rise to 3.8% in 2026, from 2.9% in 2025, before declining to 2.6% in 2027 and 2.3% in 2028 as pressures stemming from energy and food prices gradually ease.
The recent US-Iran agreement has raised expectations of an end to hostilities and further moderation in energy prices. This points to the possibility of more favourable developments in the Greek economy. Under this scenario, which assumes a faster decline in oil and natural gas prices, inflation would be slightly lower and economic activity somewhat stronger than currently projected. In particular, real GDP growth is projected at 2.0% in 2026 and 2.1% in both 2027 and 2028, while HICP inflation is projected at 3.7% in 2026, 2.5% in 2027 and 2.2% in 2028.
Challenges
The Greek economy has made significant progress in recent years, recording growth rates above the euro area average, strengthening fiscal and financial stability, and implementing important reforms. This progress has also been recognised by the European Commission, which considers that Greece no longer faces macroeconomic imbalances. Nevertheless, important challenges remain. These include low productivity, the slow transformation of the production model, demographic pressures, skills shortages and labour market bottlenecks, the limited diffusion of innovation, weak household purchasing power and difficulties in accessing affordable housing. At the same time, the economy continues to face challenges related to energy dependence, the persistently high current account deficit, the impacts of climate change, the sustainable management of natural resources, and chronic institutional weaknesses in public administration and the justice system. In addition, public debt remains elevated, while inflation continues to exceed the euro area average, denting the competitiveness of the economy.
Policy recommendations
Economic policy in the coming years should focus on supporting the transition of the Greek economy towards a more productive, outward-oriented, innovative, green and resilient growth model through a coherent agenda of reforms and investments.
In the short term, fiscal policy should remain prudent and complement the ECB’s monetary policy stance, without adding to inflationary pressures. Any support measures for households and businesses should be targeted, temporary and fiscally sustainable. At the same time, efforts to safeguard effective competition and address market distortions should be strengthened, including by stepping up audits. Over the medium term, enhancing competition through the removal of regulatory and administrative barriers will be essential for containing price pressures and improving competitiveness.
A key priority should be to boost productivity through structural reforms aimed at improving the business environment. Speeding up the delivery of justice, cutting red tape, strengthening public sector effectiveness, ensuring tax policy stability, and completing spatial and urban planning reforms would significantly enhance Greece’s attractiveness as an investment destination. Further simplification of the regulatory framework, faster licensing procedures, full digitalisation of public administration and systematic evaluation of regulatory interventions should also remain priorities.
Particular emphasis should be placed on improving the quality of investment. Available European resources should be directed towards sectors that strengthen the economy’s long-term productive capacity, including industry, research and development, energy infrastructures, logistics, agri-food, pharmaceuticals, export-oriented services and cutting-edge technologies. Investments in intangible capital, innovation, artificial intelligence and advanced digital applications are especially important.
The effective utilisation of European financing instruments after the expiry of the Recovery and Resilience Facility (RRF) will also be crucial. This includes resources available under the new Multiannual Financial Framework, the Social Climate Fund, the Modernisation Fund and other EU programmes.
At the same time, a more effective innovation policy is needed. Strengthening the governance of the research and innovation ecosystem, fostering collaboration between universities, research centres and businesses, deepening the venture capital market and accelerating the adoption of advanced digital technologies can significantly enhance productivity.
Improving access to finance for businesses remains another critical priority. Expanding financial instruments through the HDB, the EIB Group and the European Investment Fund, alongside developing alternative financing channels and venture capital markets, can help reduce financing gaps, particularly for small and medium-sized enterprises. In parallel, the continued strengthening of bank balance sheets and the accelerated resolution of non-performing loans would further support credit provision to the real economy.
Enhancing energy security and economic resilience requires accelerating investment in renewable energy sources, energy storage, electricity networks and interconnections, alongside improving energy efficiency. At the same time, more investment is needed in resilient infrastructures, civil protection and climate adaptation measures, supported by a comprehensive framework for natural risk management. Particular emphasis should also be placed on the sustainable management of natural resources through water infrastructure and water-efficiency projects, improved waste management, higher recycling rates and the promotion of a circular economy.
Labour market policies should focus on increasing labour force participation among women, young people, older workers and vulnerable groups. Expanding childcare and long-term care services, promoting flexible working arrangements and strengthening active labour market policies can help raise employment rates. At the same time, upgrading human capital requires improvements in education, stronger vocational training systems, enhanced digital skills and a better alignment of skills with labour market needs.
Addressing housing affordability challenges requires increasing housing supply through faster permitting procedures, mobilising underutilised housing stock, encouraging residential investment and expanding affordable and social housing policies. Strengthening social cohesion also requires improvements in healthcare services, further development of primary healthcare, addressing workforce shortages and reducing regional disparities in access to public services.
Finally, maintaining fiscal credibility and financial stability requires prudent fiscal policies that ensure sustained primary surpluses and a continued decline in the public debt-to-GDP ratio, while further enhancing competition and efficiency within the financial system.
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Greece is much better placed than in the past to navigate the years ahead, having achieved substantial progress in economic growth, fiscal and financial stability, the attraction of domestic and foreign investment, and the credibility of economic policymaking. A key determinant of this progress has been political stability, which has enabled the consistent implementation of reforms, strengthened investor and market confidence, and supported the effective management of successive crises. Preserving political and economic stability, alongside continuing reforms and effectively utilising European resources, is a key prerequisite for the transition towards a more productive, outward-oriented and resilient growth model.
At the European level, geopolitical shifts, the challenges associated with energy and defence security, and the green and digital transitions underscore the need for stronger European cooperation and more effective financing mechanisms. Enhancing competitiveness, deepening European integration and completing initiatives such as the Banking Union and the Savings and Investments Union can support the investment needed to address common challenges, reduce financial fragmentation and strengthen Europe’s strategic autonomy and resilience in the face of global challenges.
The full text of the Report is available (in Greek) here.