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Southern Europe's four largest economies have outperformed Germany by around 5 percentage points since 2017, confirming that the region is recovering twice as fast from the recent shock.
Italy, Spain, Portugal and Greece have collectively increased their index-adjusted gross domestic product by more than 200 billion euros over the past six years, more than the entire Portuguese economy, while Germany's GDP has increased by It has grown by only 85 billion euros. The analysis was carried out by the Financial Times' Capital Economics consultancy.
Germany's economy has grown little since the coronavirus pandemic struck in 2020, after a sharp slowdown in its vast manufacturing sector was exacerbated by rising energy prices since Russia's invasion of Ukraine.
Southern European countries, by contrast, have been boosted by a recovery in tourism as pandemic restrictions are lifted, as well as a reduced impact from weak manufacturing and the loss of cheap Russian gas.
Andrew Kenningham, chief European economist at Capital Economics, said output in southern Europe's four biggest economies “currently exceeds Germany by more than 5 percentage points.”
However, the rapid growth since 2017 has only partially reversed the ground lost since the 2008 financial crisis, after which many economies in the eurozone 'periphery' suffered banking crises and debt Relief was needed.
“Peripherals'' are now 20% larger [than Germany] “Before the global financial crisis,” Kenningham added.
He said the relative outperformance of southern countries appears to be helping the European Central Bank maintain broad consensus on the timing of a potential rate cut, with a rate cut expected in June if price pressures continue to decline. He said most rate setters have indicated that it is likely to begin.
“Unlike much of the past decade, the southern economies clearly do not need more accommodative monetary policy than the core economies,” Kenningham said. “If anything, the opposite may be true.”
The two-speed eurozone economy is also helping to narrow the gap between southern European countries' borrowing costs and Germany. The yield spread between Italy and Germany's 10-year bonds, a closely watched indicator of financial stress, recently fell to its lowest level since 2021.
Southern countries, including Italy and Spain, the eurozone's third and fourth largest economies, respectively, will continue to grow steadily while northern economies such as Germany, Austria and the Netherlands remain stuck in a rut. It is expected to continue outperforming this year.
Kenningham said the Quartet as a whole is expected to expand by 1% more than Germany between the end of this year and 2026. But he and other economists doubt this trend will continue much beyond that point.
A recent study by Dutch bank ING found that rapid wage increases over the past four years have made labor costs less competitive in Austria, Belgium, France and the Netherlands, while productivity gains have made labor costs less competitive in Italy, Spain, Greece and Ireland. It turns out that competitiveness has improved. Improvement. Germany's labor competitiveness remained flat.
Another factor is the EU's €800 billion recovery fund. The fund primarily benefits southern countries through a combination of subsidies and low-cost loans in exchange for growth-promoting structural reforms. Italy and Spain are the first and second largest beneficiaries of this fund.
Rafael Domenech, chief economist at Spanish bank BBVA, said Spain's growth was driven by a 1.1% increase in the labor force last year due to large numbers of immigrants. But he added: “Given Spain's low investment per working-age population, [an expected decline in] Despite productivity growth, it is questionable whether this growth gap will continue in the future. ”
Last week, Germany's five major economic research institutes lowered their 2024 growth forecast for the country from 1.3% to 0.1%. However, the growth rate is expected to recover to 1.4% next year.
Greece's central bank governor, Yanis Stournaras, told the FT that much of the southern countries' recent strong performance was due to “Germany adjusting its business model to the new reality of higher energy prices and lower exports to China.” However, he added: “I don’t think this is permanent.”
Another factor weighing on Germany's growth is the sharp tightening of fiscal policy last year to reduce the government's budget deficit by nearly 2% in response to the reinstatement of the country's restrictive debt brake rules.
In contrast, southern countries have maintained a more supportive fiscal stance, with Italy's budget deficit increasing to 7.2% last year.
Italy plans to rein in spending to meet recently restored EU fiscal rules, meaning the country's outperformance is expected to fade. Mr Kenningham said almost all of Italy's growth since 2019 was due to high “super bonus” tax breaks encouraging private construction, but cuts to the scheme had made such expansion “unsustainable”. Ta.
