Greece’s position in the new reality following the outbreak of war in the Middle East is analyzed in the annual assessment prepared by the International Monetary Fund for each of its member countries, under Article IV of its charter. Specifically, the IMF estimates that the Greek economy remains resilient to the shock from the war in the Middle East, but warns of increased risks stemming from energy, inflation, and geopolitical instability.

Greece is entering a new period of global uncertainty under very different conditions compared to previous crises. This is the main conclusion of the Fund’s new report, which acknowledges that the Greek economy is facing the energy and geopolitical shock from the war in the Middle East with a stronger fiscal position, an improved banking system, and higher credibility in the markets.

Despite the unfavorable international environment, the Fund notes that investments, reforms, and resources from the Next Generation EU program are acting as key mechanisms supporting economic activity. However, the message of the report is clear: external risks are increasing, while pressures from energy costs could affect both growth and inflation across Europe.

As it characteristically notes, strong investments and structural reforms under Next Generation EU are supporting growth. Recent reforms to reduce tax evasion have broadened the tax base and limited the informal economy, creating fiscal space to support household disposable income, while also ensuring a rapid reduction in public debt. The 2026 Financial Sector Assessment Program—the first since 2006—finds that systemic risks in the financial system were low before the war and remain manageable.

Slower growth

The IMF forecasts that Greece’s economic growth rate will slow to 1.8% in 2026. According to the analysis, higher energy prices and weakening external demand due to the war will constrain private consumption and affect tourism, which remains a key pillar of the Greek economy.

The Fund also estimates that in the medium term growth will hover around 1.5%, as Greece continues to face structural weaknesses such as population aging, low labor force participation, and limited productivity.

Risks are tilted to the downside, mainly due to a prolonged war, possible escalation of geopolitical tensions, and trade fragmentation, while domestic risks include potential delays in implementing projects financed by Next Generation EU. Upside risks to inflation stem from further increases in commodity prices, wage increases exceeding labor productivity, and higher costs related to climate shocks.

The report welcomes the continued improvement in public sector balance sheets, but notes that incomplete private sector balance sheet repair and remaining structural obstacles weigh on medium-term growth and external balances. The Fund calls for an appropriate mix of macroeconomic and financial policies and completion of the structural reform agenda in order to preserve hard-won stability, remove supply constraints, and ensure balanced and sustainable growth.

This assessment is particularly significant, as the IMF essentially highlights that the Greek economy has improved its stability but has not yet developed the mechanisms needed to achieve sustainably high growth rates without support from European funds and public investment.

War and energy in focus

The report reflects strong concern about geopolitical developments, especially the consequences of a prolonged war in the Middle East. The IMF believes that a longer crisis or further escalation could lead to additional increases in energy prices, higher transport costs, and renewed inflationary pressure.

According to the Fund, inflation is expected to rise to 3.5% this year before easing to 2.7% in 2027.

Of particular importance is the fact that the Fund now explicitly links geopolitical developments with inflationary pressures in Europe. As it notes, new increases in commodity prices, wage pressures, and costs associated with extreme climate events could fuel a new cycle of price increases.

Fiscal stability and tax evasion

The IMF is particularly positive about Greece’s fiscal performance, which is supported by reforms to reduce tax evasion. These reforms have contributed to a steady reduction in public debt and create room for temporary measures to mitigate the impact of higher energy prices without disrupting the path of debt reduction.

It agrees that maintaining primary surpluses and fully utilizing available European funds to sustain public investment beyond the end of Next Generation EU will help further reduce public debt and maintain strong growth. It recommends focusing on efficient public investment and safeguarding social spending. The response to the energy crisis should remain targeted and temporary. Further fiscal structural reforms would enhance the effectiveness of fiscal policy. Fund officials note that anti–tax evasion reforms have strengthened public revenues while reducing the informal economy.

Banks and risks

Regarding the banking system, the IMF estimates that systemic risks remain manageable and that Greek banks are resilient even under stress scenarios.

Despite the improved picture, the Fund notes that vulnerabilities still exist and require attention.

As stated, the banking system shows resilience in stress tests, but close monitoring of common exposures to large corporates is needed. Another risk comes from non-performing loans outside the banking system, while it encourages stronger supervision of loan servicers.

The IMF also calls for better crisis preparedness and stronger financial safety mechanisms, emphasizing that the international environment remains highly unstable.

The major reform challenge

One of the key conclusions of the report is that Greece needs to accelerate deeper structural reforms in order to permanently strengthen competitiveness and productivity.

The IMF places particular emphasis on reducing bureaucracy, accelerating digital transformation, strengthening competition, and improving workforce skills.

It also notes that completion of the EU single market could enhance productivity and improve the resilience of the Greek economy against global shocks.

Special mention is made of the housing problem, with the IMF arguing that policies that more effectively increase housing supply could improve housing affordability.

In any case, the IMF’s tone remains overall positive, projecting primary surpluses of 3.6% and 3.0% for 2026 and 2027 respectively, following 4.9% in 2025. This is expected to lead to a reduction in the debt-to-GDP ratio to 136.6% in 2026 and 130% in 2027.