Behind the showcase of «growth», the Levy Institute reveals a bubble economy sustained by Bulgaria-level wages and undeclared billions.
As it reports, Greece has been transformed into a vast coffee shop without a productive base, at a time when the «borrowed funds» of the Recovery Fund are dangerously running out.
And the bill for the fairy tale of the success story is expected to be delivered in 2027, bringing the country face to face with a new, painful cycle of crisis and social impoverishment.
The distorted success story
News about the state of the Greek economy present a picture of continuous successes.
However, a closer examination of the data gives a completely different picture, argues the Levy Institute.
Announcements about the positive elements of the economy are overemphasized, while worrying trends are either not highlighted or are presented as negligible.
Government-friendly research organizations, think tanks, research departments of large systemic banks, as well as government bodies, praise the effective and efficient management of the economy.
Of course, announcements by the Bank of Greece and the Hellenic Statistical Authority record certain positive trends: increase in production, reduction of «official» unemployment rates, increases in the minimum monthly wage, the PMI index, public and private investments and fiscal discipline, which is achieved through a combination of higher tax revenue collection and restriction of primary expenditures, leading to primary surpluses, the latter increases the country’s credibility in financial markets, as reflected in higher credit ratings of Greek government bonds and relatively lower interest rates compared to previous periods, which reduces borrowing costs.
On the other hand, economic trends that are not widely highlighted focus on the declining purchasing power of citizens, which is at the lowest levels among EU member states along with Bulgaria, as well as the increasing proportion of individuals who are either below or at the threshold of poverty and social exclusion.
And this, despite increases in the minimum monthly wage that are so proudly emphasized by the government narrative.
In addition, inflationary pressures, particularly in food, energy and other basic needs, lead to a reduction in private consumption levels.
Disposable income in Greece, despite various social transfers (vouchers), is decreasing more than in any other Eurozone member state, which increases pessimism among consumers, as shown by the deeply negative confidence index hovering around -46, one of the lowest levels in the EU, far below its average.
The reasons for this persistent pessimism do not stem only from rising prices, but also from the deterioration of economic insecurity.
Other negative and indeed very important trends include the reduction of labor productivity and the technological content of production.
The usual indicators of economic performance include GDP per capita, which is increasing, but still remains at a very low level, tied with Bulgaria, as reported by Eurostat.
The state budget recently submitted to Parliament is optimistic, projecting sustainable growth above the EU average, with increasing tax revenues mainly from VAT and control of general government primary expenditures, in accordance with the recently adopted European economic governance framework.
Government forecasts are likely to be revised downward, given persistently high inflation and the recent conflict between Iran, Israel and the United States, while the Russo-Ukrainian war continues unabated.
Geopolitical instability will exacerbate existing disruptions in supply chains, particularly those affecting oil, LNG, fertilizers and food, on which Greece depends heavily.
Geopolitical known unknown variables, together with ongoing negative conditions, inflation, compressed wages, stagnant disposable incomes, and those expected to emerge soon, such as the expiration of the Recovery and Resilience Facility (RRF) and other European post-Covid support programs, will worsen the prospects of the economy for the rest of 2026 and beyond, notes the Levy Institute.
Estimates
In this context, the estimates of the Levy Institute, based on the Stock-Flow Consistent macroeconomic model, diverge significantly from those of the Bank of Greece, the European Commission, the IMF and the OECD.
As noted, the persistent deficit in the current account balance, combined with the government’s tendency toward primary fiscal surpluses, does not bode well for the financial balance of the private sector, which in turn will negatively affect aggregate demand and other related variables critical for continued growth.
The Greek economy has recorded one of the highest rates of real GDP growth, including per capita GDP, compared to the pre-Covid period.
Real GDP per capita in Greece increased by 12.8% between 2019 and 2025, compared to an increase of only 3.7% for the Eurozone as a whole.
However, despite significant increases, real GDP per capita in 2025 still amounted to only 56% of the Eurozone average, down from 66% in 2006, and was much lower compared to major economies.
The share of wages in Gross National Income, despite economic recovery, remained among the lowest in the EU, due to wages not keeping pace with the overall growth rate.
This means that the purchasing power of wages is among the lowest in the EU and insufficient to cover even the 13 basic and necessary goods and services, as defined and recorded by the Hellenic Statistical Authority.
Disposable individual income, including social transfers, was also among the lowest in the EU, at 13,381 euros in 2025, even with an 8% increase compared to 2024.
This brings more individuals close to or below the threshold of poverty and social exclusion, 27.5% of the population in 2025, up from 26.9% in 2024 (Hellenic Statistical Authority).
Moreover, the employment and unemployment picture in Greece presents its own challenges.
The revised seasonally adjusted unemployment rate in February 2026 was 8.5%, up from 7.9% in the previous month, and has recorded higher levels already since October 2025.
The total number of unemployed amounted to 410,500 individuals, while individuals outside the labor force who neither work nor seek employment are 2,906,800. These figures, along with the total number of employed (4,412,200), come from the latest report of the Hellenic Statistical Authority.
In addition, Greece has the highest rate of long-term unemployment among EU member states, at 5.4%, which constitutes a critical issue with no visible improvement despite accelerated economic growth in recent years.
Another worrying issue is the large discrepancy between the official number of unemployed recorded by the Hellenic Statistical Authority based on the ILO definition and the number of registered unemployed by the Public Employment Service, which is more than 2.2 times higher, namely 903,928 individuals.
Long-term registered unemployed amount to 412,191 individuals, approximately 45.6%.
The highest concentration of registered unemployed concerns the age group 30-44 years, 268,539 individuals or 29.7% of the total, which includes younger and skilled labor force, resulting in the phenomenon of intense high-skilled migration, brain drain, while others depend on family support or undeclared low-paid work.
It should be noted, as highlighted by the Levy Institute, that the discrepancy between the two measurements is not observed exclusively in Greece.
Differences arise from different methods and definitions.
For example, in Germany, the official unemployment rate in February 2026 is 3.8%, while the corresponding rate of registered unemployed reaches 6.3%, a multiple of 1.658.
The peculiarity of Greece is that the divergence is even greater, with the registered unemployment rate corresponding to 18.7%.
What matters is that the real unemployment rate is neither 18.7% nor 8.5%, which explains the high number of individuals close to or below the poverty threshold, with corresponding effects on consumption and aggregate demand for the rest of 2026 and beyond, unless effective active employment policies are implemented by the government.
Consumption has historically been the most important determinant of GDP growth, along with Tourism, which is recorded in exports.
However, the contribution of consumption in 2025 was lower and may decrease further in the medium term.
In 2025, fixed investments also contributed significantly, mainly due to financing from NGEU and other European funds.
However, gross capital formation decreased in 2025 compared to 2024, due to the large decrease in the category «change in inventories».
Given that this magnitude arises as a residual in GDP estimation, it includes measurement errors and it is possible that the contributions of individual components will be revised.
The obvious question is to what extent strong economic growth can be sustained in the medium term.
The analysis of the financial sustainability of demand is based on the net lending and borrowing position of the private sector as a whole, which is calculated as the sum of the positions of households, businesses and the financial sector, or as a reflection of the financial balances of the public and external sectors.
These balances, as published in the quarterly institutional sector accounts of the Hellenic Statistical Authority, arise from the difference between private sector receipts, disposable income, and current and capital expenditures.
A positive balance, net lending position, requires the state and the external sector to be in a net borrowing position, according to macroeconomic identity.
Data from the Hellenic Statistical Authority show that Greece’s current account deficit, the main determinant of the 2009/2013 crisis, worsened after 2018, but showed recovery in the period 2022-2025, mainly as a result of the significant reduction in domestic demand.
The reduction of the fiscal deficit and its transformation into a surplus position in 2024 contributed to the withdrawal of funds from the private sector.
According to data from the Hellenic Statistical Authority, the private sector is now in a deficit position not far from the pre-Great Recession level of 2007.
The consequence of this situation is that the private sector increases its liabilities toward foreign institutions or reduces the stock of its net foreign assets.
Part of the explanation lies in the increase of «Foreign Direct Investments» in real estate, which in turn contributed to a rapid increase in housing prices, which increases the cost of renting relative to the general price level.
In other words, the outflow of foreign exchange implied by a negative current account balance was partly offset by inflows related to the transfer of housing ownership to foreign institutions.
These Foreign Direct Investments do not increase further in 2025, but remain at a high level each quarter, almost at 1% of GDP.
The decrease in the second half of 2025 is due to the fact that many unauthorized constructions face legal uncertainty.
It is expected that some of these unauthorized constructions will be settled and approved in the first quarter of 2026.
Some of these constructions concern new private and public buildings (Research and Markets, 2025).
Most public building constructions, if not all, are financed either entirely by the Recovery and Resilience Facility (RRF) or co-financed with the state, with notable cost overruns and slower completion processes.
To investigate the remaining changes in net foreign assets and liabilities, the Levy Institute examines the financial accounts of institutional sectors, as published by the Bank of Greece.
These data tell a quite different story.
While the net borrowing position of the public sector is estimated at the same level by both sources, the balance of the external sector from the financial accounts does not show deterioration.
On the contrary, the latest available data for the third quarter of 2025 shows a surplus of about 3% of GDP, which offsets the government surplus, suggesting a small positive balance for the private sector.
The Bank of Greece and the Hellenic Statistical Authority are fully aware of the large differences in their respective estimates regarding financial balances, and in 2025 a special working group was established to address this issue, without results so far.
A reasonable explanation of the discrepancy that should be investigated may be related to the underestimation of private sector income, which would imply higher private sector savings, but would not explain the gap in measuring the external sector balance, unless the underestimated income comes from abroad, that is from tourism.
It is known that a significant part, on the order of 45 to 50 billion euros of undeclared income, representing more than 20% of GDP, of the Greek economy lies in the informal sector.
Due to high taxation in the official economy, many businesses, self-employed individuals and households are driven into the shadow economy.
The expansion of the shadow economy usually occurs in periods of economic hardship (Pappada and Zylberberg 2025, Dellas, et al., 2024, KEPE 2025).
Reducing the shadow economy requires effective policies, and mainly the reduction of income and consumption taxation, instead of the exclusive focus on stricter enforcement of legislation.
Monetary policy
The direction of monetary policy is unclear. The President of the ECB, Ms Lagarde, admitted that «We are faced with deep uncertainty regarding the course of the economy.»
Europe and the world face the consequences of the war against Iran, which together with the ongoing Ukraine-Russia conflict has caused a renewed sharp increase in oil and natural gas prices in international markets, but it remains difficult to predict the duration of the latter conflict, with even greater effects on energy prices, the ECB notes that the effect on inflation will depend on a broad pass-through, which «is the exception and not the rule».
Moreover, a persistent increase in energy prices and related products is likely to cause a reduction in consumption and consequently GDP growth not only in Greece but also in the Eurozone as a whole, making the prospect of interest rate increases by the ECB unlikely.
Therefore, it is estimated that interest rates will remain at their current level.
Fiscal policy
The Greek government, in 2025 continued its policy aiming to reduce the country’s existing public debt through the creation of fiscal surpluses.
Government consumption has steadily decreased since the Covid-19 period as a percentage of GDP, it reached 18.4% of GDP in 2025, compared to 21.6% in 2021.
Social benefits also decreased, from 19.4% of GDP in 2021 to 16.5% in 2025.
It is estimated that both consumption and social benefits will stabilize in real terms.
Public investments have increased compared to the pre-Covid period, mainly due to resources directed from the NGEU program through the Recovery and Resilience Facility (RRF).
They have been around 3% of GDP, higher than during the Great Recession period, but approximately half of the normal level before it.
Public investments are projected to decrease, as RRF funds are completed and the loan portion begins to be repaid from 2027 onwards.
Inflation
Given global instability and uncertainty regarding the outcome of current conflicts in the Middle East and Eastern Europe, combined with adverse weather conditions observed last year and this year, it is extremely difficult to predict what will happen to domestic and international prices in the coming quarters.
What is known is that prices of energy, fertilizers and food are increasing, making it difficult to meet needs for many households.
In the baseline scenario of the Levy Institute, however, it is implied that the consumer price index will increase at an annual rate of 3%, higher than the 2% target of the ECB, but likely lower than what may result due to the external disturbances mentioned.
Employment and consumer spending
Employment growth has been relatively strong, although mainly in unskilled and low-paid categories, combined with low productivity.
Labor productivity has decreased, as disproportionately the tourism, hospitality and related sectors attract most of the unemployed, being low in technological intensity.
Recent data show that the apparent recovery of employment is accompanied by persistent wage compression, reflecting a structural transformation of the Greek labor market and not a cyclical adjustment.
Despite the restoration of total employment and working hours to pre-crisis levels, compensation per employee remains among the lowest in the EU in terms of purchasing power, while average working time is the highest among member states.
The combination of increased labor intensity and low pay suggests a regime of «growth without income», where job creation contributes weakly to domestic demand.
Institutional changes implemented during the adjustment programs, particularly increased labor market flexibility and internal devaluation, had permanent effects, compressing the wage distribution and anchoring a large share of workers close to the minimum wage.
These developments explain the continued weakness of household disposable income, as mentioned earlier, and of private consumption, reinforcing the broader concern that the current growth momentum is not supported by a sustainable income base for the majority of the population (Missos and Rodousakis, 2025).
Moreover, the unequal distribution of employment between high-skilled and high-paying positions and low-wage jobs, together with significant rates of unemployment and underemployment, creates a significant challenge for maintaining consumer spending at levels sufficient to support growth.
External demand
Net exports of goods from Greece do not constitute a driving force of growth, with the exception of tourism, transport and refined petroleum products.
Demand for exports usually depends on a weighted average of the real GDP of Greece’s trading partners, as derived from IMF forecasts (World Economic Outlook, 2025).
In this context, however, geopolitical turmoil may constitute a significant factor affecting external demand.
The results of global exogenous disturbances are difficult to assess and may affect the small improvement of Greece’s external sector.
Forecasts 2025-2026
Based on the above analysis, indications of gradual but persistent weakening of economic activity in the medium term are observed.
Real GDP growth is expected to slow from 2.0% in 2025 to 1.3% in 2026, before declining further to 0.7% in 2027 and eventually becoming negative by 2029, -0.5%.
This trajectory reflects a progressive contraction of domestic demand, particularly private consumption, which transitions from moderate growth, 1.8% in 2025, to sustained contraction thereafter, reaching -4.3% by 2029.
The decline in consumption is consistent with the combined effects of high inflation, stagnant real incomes and fiscal policy that favors maintaining significant primary surpluses.
Investment dynamics provide only partial support to overall demand.
Although investments show strong growth in the short term, 9.8% both in 2025 and in 2026, mainly due to the continuation of projects related to the Recovery and Resilience Facility (RRF), given that these funds are gradually completed, investment growth moderates significantly, falling to about 3 to 4% in the period 2027-2028 and further to 1.4% in 2029.
This slowdown highlights the limited ability of private investment to offset the withdrawal of public support, especially in an environment of weak demand expectations.
Public spending contributes minimally to growth throughout the projection horizon, remaining broadly stable in real terms.
This reflects the authorities’ commitment to fiscal consolidation, as evidenced by the continuous increase of both overall and primary fiscal surpluses.
The overall surplus increases from 4.1% of GDP in 2025 and peaks at 5.6% in the period 2027-2028, before slightly decreasing to 5.2% in 2029.
Similarly, the primary surplus remains persistently high, exceeding 7% of GDP throughout the period.
Although this trajectory supports debt reduction, it also implies a continuous withdrawal of public demand from the economy, with effects on growth, employment and incomes.
The external sector gradually becomes the main driver of growth.
Export growth strengthens from 1.5% in 2025 to above 4% in 2026, before stabilizing around 3% in subsequent years, supported by external demand conditions.
At the same time, imports show a volatile but generally declining course, reflecting the contraction of domestic absorption.
As a result, the external balance improves significantly, moving from a deficit of -3.9% of GDP in 2025 to near balance in 2027 and eventually to a surplus of 4.6% in 2029.
This adjustment shows that the correction of external imbalances is achieved mainly through demand compression and not through significant expansion of export capacity.
From the perspective of sectoral balances, this implies that the domestic private sector will record financial deficits, although these will gradually decrease over time as the external position improves.
The adjustment path is therefore characterized by continuous removal of financial resources from the private sector, as the net acquisition of financial assets of the private sector remains negative throughout the projection period.
In 2025, the NAFA equals -8.0% of GDP and remains at the same level in 2026.
Although the strengthening of the external balance partially mitigates this effect in subsequent years, the overall picture shows that the reduction of public debt and the improvement of external accounts are achieved at the cost of prolonged compression of the net financial wealth of the private sector.
Overall, the baseline scenario describes an adjustment path in which fiscal consolidation and weak domestic demand lead to a restructuring of the economy toward the external sector.
However, this process is accompanied by a reduction in output and contraction of private consumption, suggesting that persistent fiscal surpluses are achieved at the cost of reduced economic activity in the medium term and the consequent effects for the overall economy.
Conclusions
According to the Levy Institute, Greece appears to have achieved a successful return to normality after the economic crisis of the period 2009-2015 and the Covid-19 pandemic of the period 2019-2020.
The current government, from 2019 onwards, has been characterized by leaders of the European Union as effective and efficient in developing the economy, increasing employment, reducing fiscal deficits and turning them into surpluses, achieving investment grade for its debt and implementing both institutional and flexible reforms in the labor market.
However, this picture covers the serious challenges that the economy will face in the medium term.
The years after 2026 are very likely to turn this successful course into a state of macroeconomic vulnerability.
The continued tightening of fiscal policy, in the absence of a new European program to support public spending after the expiration of RRF resources, will significantly shrink the economy.
As shown by the projections of the Levy Institute, by 2027 the Greek economy will be at the beginning of an economic crisis with worsening unemployment, further reduction of disposable income and even higher poverty rates.
The missed opportunity to utilize the structural resources of the Recovery Fund for the development of a new productive model that would aim at import substitution, solar and wind energy, logistics and food indicatively, and in this way reduce dependence on imports (Papadimitriou, et al., 2024), may no longer be feasible in the future, in light of stricter governance controls established by the EU for particularly highly indebted member states.
In addition, the experience of the last approximately two years shows that climate change has become an urgent priority for the protection of the primary sector of the economy from uncontrolled floods and fires, with serious effects on the overall economy and the standard of living of the population.
The proverbial «business as usual» model that has transformed the Greek economy into a «café economy» (Nikiforos, et al. 2025), dependent mainly on tourism and related activities, can neither develop the economy nor improve the standard of living.
Our economic simulations in many of our previous reports were pessimistic and the same applies to the present report. We are reminded of the well-known phrase of Andrew Smithers regarding the economic crisis 2007-08, when he wrote:
«Cassandra was a correct analyst. Her forecasts were correct, she made no reference to their timing and her views were largely ignored.
But what enraged her was a headline in Troy Times: “Queen Hecuba asks ‘Why did no one warn us about the wooden horse?’”» concludes the Levy Institute.
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