Greek economy shows resilience despite Middle East uncertainty

The Greek economy continued to demonstrate resilience in recent months despite the ongoing crisis in the Middle East, with stronger retail sales, easing inflation and solid business lending helping to support growth, according to a report from Eurobank. The bank said the latest economic indicators suggest that, for the time being, Greece has withstood the effects of geopolitical tensions, although it cautioned that uncertainty remains high due to the potential impact on energy prices and global demand for goods and services. Eurobank explained that retail sales rebounded in May, employment growth accelerated in June, lending to non-financial businesses remained strong, inflation slowed further in July, while both economic sentiment and manufacturing activity continued to point to expanding economic activity. The report also said stronger-than-expected economic growth across the European Union and the euro area during the second quarter of 2026 should help support demand for Greek exports. Retail sales volumes rose by 3.4 per cent month-on-month in May, reversing declines of 1.5 per cent in April and 0.4 per cent in March, while annual growth reached 6.5 per cent, helped by a weak comparison base in May 2025. Growth was broad-based across the retail sector, with higher sales recorded in supermarkets, department stores, fuel, food and beverages, pharmaceuticals and cosmetics, clothing and footwear, household goods, furniture, electrical appliances, books and stationery. The report also highlighted improving labour market conditions, with annual employment growth accelerating to 1.2 per cent in June, up from revised rates of 0.9 per cent in May and 0.5 per cent in April. For the second quarter as a whole, employment increased by 0.9 per cent year-on-year, only slightly below the 1.2 per cent recorded during the first quarter and significantly stronger than initial estimates, which had suggested growth of just 0.4 per cent. Eurobank said this indicates employment likely contributed more to economic growth during the second quarter than previously expected. Business lending also remained robust, with credit to non-financial companies increasing by 9.8 per cent year-on-year in June and averaging 9.7 per cent over the second quarter. The bank said continued credit expansion is helping to finance productive investment, strengthen Greece’s productive capacity and support the country’s long-term recovery following the debt crisis, which weakened both physical and human capital while reducing overall productivity. Inflation eased sharply in July, with the harmonised index of consumer prices slowing to 2.7 per cent, down from 3.9 per cent in June and falling below the euro area’s 2.9 per cent rate for the first time since October 2025. Eurobank attributed the slowdown mainly to lower food inflation, which fell to minus 0.3 per cent from 2.2 per cent, and easing services inflation, which declined to 3.1 per cent from 4.5 per cent. Consumer prices also fell 1.4 per cent compared with June, marking the largest monthly decline among the EU’s 27 member states. However, the bank cautioned that the drop does not necessarily signal a lasting easing of underlying inflationary pressures, as it was driven largely by seasonal summer discounts, lower prices for unprocessed food and slower increases in energy prices. Economic sentiment remained strong despite a slight decline, with Greece’s indicator easing to 107.6 points in July from 108.2 in June, remaining comfortably above its long-term average of 100 and well ahead of the euro area reading of 96.9. Consumer confidence improved to a seven-month high, although it remained considerably weaker than in the euro area, while household finances continued to face pressure as inflation offset nominal income growth and household savings stayed in negative territory. Meanwhile, the manufacturing purchasing managers’ index (PMI) rose for a third consecutive month to 54.3, well above the euro area reading of 51.9, reflecting stronger new orders, increased production, higher employment and signs of improving export demand, although cost pressures remained relatively elevated. Eurobank also pointed to encouraging preliminary growth figures for Europe, with the EU economy expanding by 0.5 per cent quarter-on-quarter and the euro area by 0.4 per cent during the second quarter, compared with 0.1 per cent and zero per cent respectively in the first quarter. On an annual basis, growth accelerated to 1.2 per cent in the EU and 1.0 per cent in the euro area, reducing, although not eliminating, downside risks for Greek exports. Overall, Eurobank concluded that the Greek economy continues to show resilience despite geopolitical tensions, supported by stronger retail activity, a healthier labour market, sustained business lending, easing inflation and resilient business confidence. Nevertheless, the bank warned that developments in the Middle East remain a significant source of uncertainty, particularly through their impact on energy prices and global supply and demand, making close monitoring of incoming economic data essential.