While the German economy continues to underperform and France remains in a middle ground, Southern European countries have become the driving force behind economic momentum in the Eurozone. As shown in the chart, Spain, Greece, Portugal, and to a lesser extent, Italy, have recorded, on average, higher growth rates than other European countries since the post-Covid rebound. What are the factors behind this outperformance?
Firstly, Southern economies have benefited from a catch-up effect since the 2008 and 2012 crises. Severely impacted by these events, all these countries, except Italy, have benefited from EU aid. Since then, Portugal and Greece have reaped the benefits of austerity measures, and the Spanish real estate sector has significantly recovered. Despite the Greek exception, these countries have all returned to their pre-sovereign debt crisis GDP levels. In addition, the labour market has recovered, although the unemployment rate remains in double digits in Spain.
Secondly, the Covid shock enabled them to recover more robustly, as the rebound in activity has been mainly driven by services, particularly due to the tourism recovery. It is therefore not surprising to see these countries outperform, given the greater weight of this sector in their GDP, as illustrated in the chart.
On the other hand, in these countries, industry is less important. In addition, these economies have generally been less impacted by the rise in energy prices, and their industrial activity has also been more resilient thanks to the increase in their renewable energy production. Furthermore, they have benefited from a renewed attractiveness of foreign direct investment inflows. For example, in 2023, Spain was the world's largest recipient of new infrastructure development projects in the renewable energy sector.
However, some structural trends in these countries suggest that this outperformance may only be temporary. Indeed, their dependence on services, particularly those with low productivity, low level of education and low wages such as tourism and construction, is weighing on productivity gains.
On the other hand, Southern countries are the main beneficiaries of the EU recovery plan. The latter are specifically aimed at boosting productivity, as well as modernising and diversifying these economies, which should ultimately further support their growth trajectory.
