Southern Europe Emerges as Economic Powerhouse in Eurozone Growth

Southern European economies, previously viewed as weaker by their northern counterparts, are now driving growth in the struggling euro area. Recent surveys by S&P Global show that Spain and Italy exceeded economists’ predictions with faster economic expansion in March. Greece’s manufacturing sector also showed improvement, helping the euro area index return from contraction after ten months.

Spain and Italy led the growth in the euro area, reaching their highest rates in nearly a year, according to Hamburg Commercial Bank. Their performance offset ongoing contractions in Germany and France, which have been experiencing economic difficulties since mid-2023.

The resurgence of tourism post-pandemic, booming exports, and lower energy prices due to renewable energy adoption have benefited southern European nations. Bank of Greece Governor Yannis Stournaras noted that tourism is thriving in southern Europe.

Southern European countries have addressed past economic imbalances, allowing them to grow more sustainably. Once at the center of a debt crisis, Spain, Portugal, and Greece are now predicted to be among the strongest performers in the euro area this year.

In contrast, France has reduced its growth forecast for 2024 and faces a significant budget deficit, while Germany struggles with a mild recession driven by weak consumer demand and high borrowing costs.

Investors are increasingly attracted to the bonds of southern European countries, with the spread between Portuguese bonds and German bunds significantly narrowing since mid-2022. Spain stands out with a steep rise in exports across several sectors, including financial services and manufacturing, post-Covid.

Spain benefits from its low exposure to fossil fuel price increases, lower labor costs compared to northern Europe, and a skilled workforce. Domestic demand is strong, with reduced debt levels and low unemployment.

Portugal achieved record tourism revenue of €25 billion in 2023, up from €21 billion the previous year. The country has also successfully increased exports, especially in textiles and automotive parts. It is now the largest bike manufacturer in Europe.

Portugal’s energy strategy focuses on reducing gas dependency, achieving 25% of its electricity from wind and 23% from hydropower last year.

Greece’s tourism sector has consistently set new revenue records, accounting for about 25% of its economy. Construction activity is growing, with a notable increase in building permits. Greece’s recovery from debt issues is highlighted by the recent sale of a stake in Athens International Airport, marking the country’s return to the public market.