Economic activity continued to grow in the first quarter of 2026 (+2.0% year-on-year and +0.2% quarter-on-quarter, seasonally adjusted data), despite the emergence of the first adverse effects from the ongoing crisis in the Middle East.
Gross fixed capital formation (GFCF) was the main driver of growth for the fourth consecutive quarter, while exports—particularly tourism—showed resilient performance, despite the weakening of the economies of Greece’s key trading partners, according to an analysis by the National Bank of Greece.
However, the upward trend in the first quarter was milder than our baseline scenario published in early March (+2.4% year-on-year and +0.3% quarter-on-quarter) and very close to the most adverse scenario we had outlined in the same analysis. Given that energy developments resemble those of the more adverse scenario, we are attempting a reassessment of the economic outlook for the current year, the analysts note.
Fixed capital investment once again recorded a very strong annual increase of 12.1%, contributing 2.0 percentage points (pp) to GDP growth in the first quarter, remaining above 18.0% of GDP since mid-2025—the highest level in the past 16 years.
All major investment categories strengthened significantly, with construction-related investments accounting for half of the total increase in GVA (residential construction rose by 15.0% annually and non-residential by 18.1% annually), while the remainder came from increased spending on mechanical, technological, and transportation equipment.
The very high level of major investment projects under construction, the strong degree of capacity utilization in both industry and services, the accelerating raising of significant capital through bank lending and the capital market, as well as the continued attraction of historically high levels of foreign direct investment, are expected to maintain the leading role of capital investment in the country’s economic performance.
Another encouraging development was the positive contribution of net exports (exports minus imports), which added 0.6 percentage points to GDP growth in the first quarter of 2026, with tourism playing a pivotal role.
This contribution remained positive for the fourth consecutive quarter, as export growth continued to outpace that of imports (+2.4% year-on-year versus +0.5%, respectively). Exports of goods and services contributed 0.8 percentage points to annual GDP growth, half of which was attributable to exports of services (+3.1% year-on-year, at constant prices).
The rise in service exports should be attributed entirely to tourism, as other categories of export services remained stagnant in the first quarter of 2026. Tourism revenues rose by 64.3% year-on-year, at current prices, in the first quarter, while arrivals increased by 38.3% year-on-year, with no visible effects—as of March—from geopolitical uncertainty.
Exports of goods rose by 2.8% year-on-year (based on national accounts data), at constant prices, driven by a strong increase in fuel exports (mainly refined petroleum products) of 5.3%, while exports of non-energy goods recorded an annual increase of 1.0%. Consequently, the resilience of the tourism sector is a key factor for economic performance for the remainder of the year in order to prevent a significant further slowdown in GDP, especially in the second quarter, given that the external environment remains unfavorable, despite increased export activity and ongoing adjustments to international supply chains.
In contrast, private consumption—which was largely expected to slow under current conditions—increased by 0.7% year-on-year in the first quarter (the mildest annual rate in the past five years), remaining unchanged on a quarterly basis. Although the slowdown partly reflects the high base of comparison due to the sharp rise in consumption in the first quarter of 2025, it undoubtedly also reflects the effects of mounting uncertainty, with consumer confidence falling in March 2026 to its lowest level since October 2022, in the wake of the war in Ukraine and the peak of the energy and inflation crisis in the summer of 2022.
It is telling that the sub-index of household inflation expectations, based on the European Commission’s consumer confidence survey, reached its highest level since March 2022.
It is worth noting that this fatigue appears to concern exclusively Greek households’ spending on services—mainly food services, accommodation, and recreation—as consumption of goods, as measured by the retail sales volume index, increased by 3.8% year-on-year in the first quarter of 2026, accelerating compared to the fourth quarter as well as the full year of 2025 (+3.2% and +2.1% year-on-year, respectively).
At the same time, the contraction in deflated domestic consumption of services is estimated at 4.0% year-on-year and is the sharpest since the third quarter of 2021. This development can, in part, be attributed to households bringing forward certain orders and purchases out of fear of accelerating inflation, which led to a prioritization of goods consumption over services.
In contrast, public consumption accelerated significantly to 1.6% annually in the first quarter of 2026, up from 0.4% in 2025. This increase, combined with the rise in spending from the Public Investment Program (“PIP”) and the Recovery and Resilience Facility (“RRF”) by a combined 15.5% annually (+0.3% of GDP on an annual basis), is estimated to translate into a combined boost of 0.6 percentage points to annual GDP growth in the same quarter, underscoring the significant strengthening of activity originating from the public sector.
The drag from the new significant contraction in inventories on an annual basis, for the fourth consecutive quarter, was greater than expected. This development reduced GDP growth by 1.5 percentage points in the first quarter and represents the largest cumulative inventory drawdown, in absolute terms, since 2008.
This development reflects, primarily: a) resilient demand for goods, b) increased use of production inputs, due to the continued strengthening of industrial production, c) the completion of investment projects, which, during their implementation phase, had led to a temporary accumulation of inventories due to statistical recording requirements, and d) the reluctance of businesses—or, in some cases, their inability—to replenish their depleted inventories, particularly in the energy sector, amid disruptions in international supply chains.
Economic activity is expected to slow further in the second quarter
Turbulence in the energy market remains significant, while the decline in oil prices is expected to occur at a slower pace in the second half of 2026 than had been indicated by energy commodity futures in the energy markets over the past two months.
Spot oil prices remained above $100 per barrel, on average, in May—falling to around $95 per barrel in early June. Similarly, inflation (CPI) in Greece is currently at the upper end of our forecasts—above 5.0% in the second quarter of 2026—further weighing on consumer sentiment, despite the mitigating effect of the new €0.8 billion fiscal support measures announced in April and May, of which €0.6 billion will be implemented immediately in the second quarter of 2026, with the aim of mitigating the impact of rising energy costs and supporting the most vulnerable households.
Regarding high-frequency indicators for Greece, the second quarter of 2026 began with a further deterioration of the economic climate in April and a weakening of conditions in most sectors, followed by a notable recovery in May.
The improvement was most pronounced in manufacturing and retail trade, while confidence in the construction sector reached a 26-year high that same month, underscoring the role of major projects and broader investment momentum in “shielding” the sector’s performance.
- On average, the Economic Sentiment Indicator (ESI) remained at a level similar to that of the first quarter during April and May, as the upward momentum in construction and retail trade, combined with the recovery in industrial confidence in May, offset the decline in confidence in services and consumption.
- Labor market data suggest a slight weakening in April, potentially reflecting reduced demand for services. Specifically, employment contracted marginally by 0.1% year-on-year in April, following a 1.2% year-on-year increase in the first quarter of 2026 (revised downward from 2.8%) and 1.5% year-on-year for all of 2025. However, the unemployment rate fell to 9.5% in April from the upwardly revised 9.7% in the first quarter of 2026.
- The annual change in VAT revenue slowed to 11.1% in April—despite higher inflation—from 15.3% annually in the first quarter of 2026.
In this context, the short-term GDP forecast model (GDP-Nowcasting) of the ETE’s Economic Analysis Directorate, which utilizes information from available monthly economic activity indicators, forecasts a marginal contraction in GDP on a quarterly basis (-0.2%) in the second quarter of 2026, corresponding to an annual rate of change of approximately 1.5% for the same quarter.
The Greek economy’s ability to return to or even exceed growth rates of around 2.0% in the second half of 2026 will depend on the timely easing of uncertainty regarding the trajectory of energy prices and inflation by the third quarter of 2026, as well as on the continuation of the upward momentum in tourist arrivals observed in May and early June.
Assuming that energy prices will evolve in line with the expectations embedded in June futures contracts, without further deterioration, the expected improvement in the economic climate, combined with strong investment and resilient exports, is projected to lead to annual GDP growth of around 1.7% in 2026.