Greece’s Economic Growth Threatened by Labor Shortages
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Loading... - Lydia Zeno
- 12 Feb 2025
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Greece's economic growth outlook is projected to exceed that of the core economies in the eurozone, according to a recent analysis by Capital Economics. However, persistent labor shortages are expected to hinder this growth, preventing it from reaching levels comparable to other "peripheral" economies in the region.
The analysis highlights that Greece's economic performance has been impressive in recent years, with the country's GDP in the fourth quarter being 9.7% higher than its pre-pandemic level, while the overall eurozone economy expanded by only 4.7%. This outperformance has been largely driven by a significant improvement in employment, which increased by 8.0% between the fourth quarter of 2019 and the third quarter of 2024. Notably, this employment growth is attributed to a decline in the unemployment rate rather than an increase in the labor force size.
The unemployment rate in Greece fell from 17% in December 2019 to 9.4% in December 2024, marking the lowest level since the Global Financial Crisis. However, during this period, the size of the labor force remained unchanged, indicating that the reduction in unemployment did not translate into a larger workforce.
Capital Economics identifies three key factors that will likely prevent significant increases in employment in the coming years. First, Greece's natural unemployment rate is estimated to be around 8-9%, suggesting limited potential for further declines. Second, the country faces weak demographic prospects, with a rapidly declining working-age population, which implies that the labor force is expected to shrink in the future. Third, historically low migration rates mean that immigrants are unlikely to fill a substantial portion of the labor shortages.
In contrast to some southern eurozone economies, particularly Portugal, Greece has seen a decline in its foreign-born labor force over the past two years. Capital Economics forecasts that this trend is unlikely to reverse sufficiently to offset the decline in the working-age population.
The analysis concludes that labor shortages will pose a significant constraint on the Greek economy in the coming years, with potential downside risks to its forecast of 2% economic growth for 2025 and 2026. As Greece navigates these challenges, addressing labor shortages will be crucial for sustaining its economic momentum and ensuring long-term growth.
