Greece’s inflation is set at 2.9% in 2025, led by services, as strong employment, tourism, wages and investment maintain a positive output gap, which is expected to remain high in 2026 amid heightened uncertainty from global energy developments. Against this backdrop, Alpha Bank clarifies that the Greek economy is “running” above its productive potential.

In detail, the new Economic Developments Bulletin of the bank’s Economic Research, entitled “Inflation and Active Demand: Determinants of Positive Output Gap,” is as follows:

The Economic Growth Factors.
Inflation, based on the Harmonized Index of Consumer Prices (HICP), averaged 2.9% in 2025, down marginally compared to 2024 (3%). The acceleration in the rise in service prices (4.8% vs. 4.4% in 2024) contributed mainly to sustaining inflationary pressures. In contrast, both non-energy industrial goods prices (0.7% vs. 1.7% in 2024) and food prices (2.1% vs. 2.8% in 2024) rose more moderately in 2025. Finally, energy prices fell for the third consecutive year, but at a slower pace (-0.7% vs. -1.4% in 2024). At the euro area level, inflation was 2.1% (vs. 2.4% in 2024), with the highest HICP increases recorded in Estonia, Croatia, and Slovakia and the smallest in Cyprus and France.

The stiffness of inflation is reflected in the positive output gap in the Greek economy, i.e. the conditions of excess aggregate demand, which in the current juncture are fuelled, to some extent, by the surplus services balance in external transactions. The output gap is defined as real minus potential GDP, with the difference between the two figures expressed as a percentage of the latter. Potential GDP is the level of output that an economy can achieve by fully and most efficiently using the productive factors, capital and labour. Hence, potential GDP reflects the productive potential of the economy, while its comparison with actual GDP indicates whether the economy is operating above or below this potential. When real GDP exceeds potential (positive output gap), domestic demand exceeds the productive potential of the economy.

Conversely, when real GDP falls short of potential (negative output gap), there is underutilization of available resources, and the economy is operating below its productive potential. In Greece, during the economic recession of the last decade, there was a strongly negative output gap (due to the rapid rise in unemployment and extensive disinvestment), reflecting conditions of weak demand and excess supply, which was reflected in sluggish or negative structural inflation (excluding volatile energy and food prices). Since 2017, when real GDP started to recover, the output gap has gradually shrunk, while remaining negative, and structural inflation has recovered, with the exception of the 2020-21 period due to the pandemic. From 2023 onwards, the output gap is positive, indicating the prevalence of excess demand conditions, which is reflected in high structural inflation.