The Greek economy’s year-on-year GDP growth slowed to 1.70% in Q2 2025, according to the latest release from the Sigmanomics database. This figure undershot the consensus estimate of 2.00% and declined from 2.20% in the previous quarter. The deceleration reflects a complex interplay of domestic and external factors amid a challenging global environment.

Drivers this month

• Domestic consumption growth softened but remained positive at 1.30% YoY.
• Investment contracted slightly by 0.50% YoY, reflecting cautious business sentiment.
• Net exports contributed positively (0.40 pp) due to a weaker euro supporting competitiveness.

Policy pulse

Monetary policy remains restrictive, with the European Central Bank maintaining elevated interest rates to combat inflation. Greece’s inflation rate eased to 3.10% YoY, still above the ECB’s 2% target, limiting room for rate cuts. Fiscal policy is moderately expansionary but constrained by debt sustainability concerns.

Market lens

Following the GDP release, the EUR/GRD currency pair depreciated 0.30% in early trading, reflecting disappointment. Greek government bond yields rose by 5 basis points, signaling increased risk premiums amid growth concerns.

Core macroeconomic indicators provide context for the GDP slowdown. Inflation remains sticky but trending down from 4.00% in late 2024 to 3.10% in mid-2025. Unemployment held steady at 12.50%, slightly above the Eurozone average but improved from 13.20% a year ago. The current account deficit narrowed to 1.80% of GDP, helped by export gains.

Monetary Policy & Financial Conditions

The ECB’s key interest rate stands at 4.50%, unchanged since early 2025. Greek banks face tighter credit conditions, with lending growth slowing to 1.00% YoY from 2.50% last year. Inflation expectations remain anchored but vulnerable to energy price volatility.

Fiscal Policy & Government Budget

Greece’s fiscal deficit narrowed to 3.20% of GDP in 2025, down from 3.80% in 2024, reflecting prudent spending and improved tax collection. Public debt remains high at 175% of GDP but benefits from low borrowing costs and EU support mechanisms.

Historical comparisons highlight that Greece’s growth has oscillated between 1.20% and 2.70% over the past two years. The 1.70% reading is below the long-term average of approximately 2.10%, underscoring a loss of momentum.

Market lens

Immediate reaction: EUR/GRD dropped 0.30%, Greek 10-year bond yields rose 5 bps, and the Athens Stock Exchange index fell 0.80% within the first hour post-release. This reflects investor concern over the growth slowdown and its implications for credit risk.

Looking ahead, Greece’s growth trajectory depends on several key factors. The baseline scenario projects GDP growth stabilizing around 1.80% in the next two quarters, supported by steady domestic demand and export resilience.

Bullish scenario (25% probability)

• Geopolitical tensions ease, boosting investor confidence.
• ECB signals gradual rate cuts as inflation moderates below 2.50%.
• Fiscal stimulus accelerates infrastructure investment, lifting growth above 2.50%.

Base scenario (50% probability)

• Growth holds near 1.70–1.90%, with modest improvements in labor markets.
• Inflation remains above target but declines gradually.
• External demand remains stable but vulnerable to shocks.

Bearish scenario (25% probability)

• New geopolitical shocks disrupt trade and energy supplies.
• ECB maintains high rates longer, dampening credit growth.
• Fiscal tightening amid debt concerns slows domestic demand, pushing growth below 1.00%.

Structural & Long-Run Trends

Greece’s long-term growth is challenged by demographic decline and productivity gaps. However, EU funds and reforms aimed at digitalization and green transition offer upside potential. Structural reforms remain critical to sustaining growth beyond cyclical fluctuations.

The 1.70% GDP growth rate for Greece in Q2 2025 signals a pause in the recovery momentum seen over the past two years. While not alarming, it highlights vulnerabilities from external shocks and tighter monetary conditions. Policymakers face a delicate balance between supporting growth and maintaining fiscal discipline. Investors should monitor inflation trends, ECB policy signals, and geopolitical developments closely.

Overall, Greece’s economy remains on a moderate growth path but is susceptible to downside risks. The interplay of domestic reforms, EU support, and global conditions will shape the trajectory in the coming quarters.

GDP Growth Rate vs. ATHEX Index Since 2020

Since 2020, Greece’s GDP growth rate and the ATHEX index have shown a positive correlation, with the stock market often leading GDP trends by one quarter. For example, the 2023 rebound in GDP growth from 1.20% to 2.70% YoY coincided with a 15% rise in ATHEX. Conversely, the recent slowdown to 1.70% YoY was preceded by a 5% correction in the index. This relationship underscores the sensitivity of Greek equities to macroeconomic momentum.

FAQ

What does the latest Greece GDP Growth Rate YoY indicate?

The 1.70% YoY growth in Q2 2025 indicates a slowdown from previous quarters, reflecting weaker investment and external uncertainties affecting the economy.

How does Greece’s GDP growth affect its monetary policy?

Slower growth limits the ECB’s ability to ease rates quickly, as inflation remains above target, keeping monetary policy relatively tight.

What are the main risks to Greece’s economic outlook?

Key risks include geopolitical shocks, prolonged high interest rates, and fiscal constraints that could dampen domestic demand and investment.

Key Takeaway

Greece’s GDP growth slowdown to 1.70% YoY signals emerging headwinds but not recession. Policy and external developments will be decisive for near-term momentum.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.