Southern Europe's reversal of fortune to persist - GS
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SOUTHERN EUROPE'S REVERSAL OF FORTUNE TO PERSIST - GS
Spain, Portugal and Greece have outperformed the rest of the euro area post-Covid having being slower in the preceding decade, in a reversal of fortunes that Goldman Sachs economists see continuing in 2025.
Since the pandemic, the trio's average growth rate exceeded that in the euro area by about 2pp. The usual explanation for their outperformance is their services' intensity, and the boost from the tourism sector in particular, explain the GS team.
"This solid economic momentum was reflected in increasing investment and consumption, with private consumption in the three economies surpassing the Euro area by a margin of between 2% and 7%," say the GS economists.
Above-average disposable income growth and a firm labour market in southern Europe lead them to expect this consumption growth and investment resilience will persist.
The countries' relatively lower exposure to US tariffs and Chinese industrial competition has also helped. Overall, GS estimates a tariff hit to the level of euro area real GDP of 0.5%, and twice that in a downside scenario where President-elect Trump imposes a 10% across-the-board tariff.
Another positive impetus is the fact that Spain, Portugal and Greece can still rely on the support of the European Recovery Fund and at the same time debt keeps on decreasing, says GS.
"Looking forward, the catch-up potential for capital growth that Spain, Portugal and Greece have demonstrated since the pandemic remains in place."
GS expects their economic outperformance and relative productivity growth to continue next year, though at a slower pace than in 2024.
(Lucy Raitano)
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