Weak Growth and High Inflation in 2026: EU Commission’s Concerns

Greece is expected to experience a slowdown in economic activity, with the growth rate declining from 2.1% in 2025 to 1.8% in 2026. The shock to energy prices is hitting households’ real incomes, limiting consumption. Despite this situation, investments are expected to remain strong, mainly due to the continued absorption of EU funds. For 2027, GDP growth is forecast to decrease slightly to 1.6%, as the Recovery and Resilience Facility (RRF) concludes.

Inflation in Greece is expected to reach 3.7% in 2026, primarily due to the sharp rise in energy prices. In 2027, it is expected to fall to 2.4%; however, inflation excluding energy and food will remain high, as the effects of the increases will impact other sectors as well.

Greece’s fiscal situation appears favorable, with surpluses forecast for the 2025–2027 period despite expansionary measures. Strong GDP growth and budget surpluses are expected to steadily reduce the debt-to-GDP ratio, which will approach 134% by the end of 2027.

The outlook has changed significantly.

“The conflict in the Middle East has caused a severe energy shock, testing Europe in an already unstable geopolitical and trade environment,” said Valdis Dombrovskis, Commissioner for Economy. “The EU must learn from past crises by keeping fiscal support temporary and targeted, while simultaneously reducing dependency on imported fossil fuels. By acting united and decisively, Europe can accelerate reforms and safeguard sound public finances.”

Before the end of February 2026, the EU economy was expected to continue growing at a moderate pace, but prospects have changed dramatically since the start of the conflict. Inflation began to rise due to increases in energy product prices, while economic activity is losing momentum.

The situation is expected to improve slightly in 2027, provided tensions in energy markets ease. EU GDP growth, previously expected at 1.5% in 2025, is now forecast to slow to 1.1% in 2026, with a rebound to 1.4% in 2027 expected.

In the euro area, growth forecasts have also been revised downward, to 0.9% in 2026 and 1.2% in 2027.

Inflation in the EU is expected to reach 3.1% in 2026, while in the euro area it has been revised to 3.0% in 2026 and 2.3% in 2027.

Europe is particularly vulnerable to the energy shock.

As a net energy importer, the EU economy is hit by rising energy prices, resulting in higher bills for households and increased costs for businesses. This reduces profits in many sectors and redirects income outside the EU to energy-exporting countries.

The conflict has also hurt consumer confidence, which is at its lowest level in the last 40 months. Despite these challenges, consumption is expected to remain the main driver of growth.

Corporate investment is expected to be limited due to tighter financing conditions and increased uncertainty. External demand is also negatively affecting exports.

The Commission notes that the EU’s investments in energy resilience are bearing fruit. Support for diversifying energy supply and reducing carbon emissions has strengthened the economy’s resilience.

Rising inflation.

Short-term inflation prospects have worsened, with headline inflation peaking in 2026 before declining in 2027. This increase is mainly due to rising energy inflation.

Slowing employment growth.

Employment in the EU increased by 0.5% in 2025, adding more than 1 million jobs. However, this growth is expected to slow to 0.3% in 2026, with a slight increase to 0.4% in 2027. The unemployment rate is expected to stabilize around 6% in 2027.

Fiscal: New burden from the energy shock.

The general government deficit in the EU is expected to increase from 3.1% of GDP in 2025 to 3.6% in 2027, reflecting subdued economic activity and increased defense spending. Public investments are expected to remain at high levels.

Supply tensions affect the outlook.

The main risk to the forecast concerns the duration of the conflict and its impacts on energy markets. Inflation may not recede, and economic activity may not recover in 2027 as forecasted. Uncertainty around global trade policies and geopolitical upheavals could further affect confidence and activity.

Faster implementation of structural reforms could offer a positive outlook, while public investments in sectors such as defense and the energy transition could offset expected weakness in the private sector.