Study: Greece’s Economic Growth Threatened by Labor Shortages

Greece’s economic growth outlook is set to surpass that of the eurozone’s core economies, according to a recent analysis by Capital Economics. However, a persistent labor shortage is expected to constrain growth, preventing it from reaching the levels seen in other so-called “peripheral” economies.

The world economic company adds that this situation could also lead to a further slowdown in Greece‘s growth, affected by the declining numbers of the working-age population, and the persistently low migration figures.

The Greek economy has been among the top performers in Europe in recent years. In the fourth quarter, Greece’s GDP was 9.7% higher than its pre-pandemic level, while the overall eurozone economy had expanded by only 4.7%.

As Capital Economics explains, Greece’s outperformance has been supported by a significant improvement in employment, which increased by 8.0% between the fourth quarter of 2019 and the third quarter of 2024.

This employment growth, however, is entirely due to a decline in the unemployment rate rather than an increase in the size of the labor force.

In fact, the country’s unemployment rate dropped from 17% in December 2019 to 9.4% in December 2024, the lowest level since the Global Financial Crisis. However, during this period, the size of the labor force remained unchanged.

In its analysis, Capital Economics cites three factors as the reasons why it does not anticipate Greece’s employment significantly increasing in the coming years.

First, Greece’s natural unemployment rate is likely around 8-9%, meaning there is limited room for it to decline much further.

Second, Greece has very weak demographic prospects, with the working-age population declining rapidly. This suggests that the labor force is also likely to shrink in the coming years.

Third, historically low migration means that immigrants are unlikely to fill a significant portion of the labor shortages in the future.

In contrast to some other southern eurozone economies, particularly Portugal, Greece has experienced a decline in its foreign-born labor force over the past two years.

Capital Economics also forecasts it is unlikely that this trend will reverse enough to offset the current decline in the working-age population.

Capital Economics concludes that labor shortage will be a significant constraint on the Greek economy in the coming years and even highlights some downside risks to its forecast of 2% economic growth in 2025 and 2026.