Europe has spent the past decade trying to reboot its economy after the global financial crisis and European sovereign debt crisis wreaked havoc on the continent. Aside from causing extended instability in the region, the economic downturn exacerbated disparities across the European Union, especially between the far south and the stronger northern economies.
“The double dip recession in 2008 and 2011 … halted the long-term reduction in disparities in GDP per head between [EU] Member States,” wrote the European Commission in its seventh report on economic, social, and territorial cohesion published last fall. “From 2008 onwards, regional disparities in employment and unemployment rates widened along with those in GDP per head.”
However, by 2017, the economic landscape was looking up in every direction of the continent, including all southern European countries. The EU economy writ large grew at its fastest pace in a decade, according to data from Eurostat, the EU statistics office, published in February. Spain, France, and Italy – three of the strongest Eurozone economies – led the increase in GDP, along with Germany, Europe’s economic powerhouse. Spain grew by 3.1 percent in the fourth quarter compared to 2016, France by 2.4 percent, and Italy by 1.6 percent. Germany grew by 2.9 percent. Overall, GDP in both the euro area and the EU grew by 2.5 percent.
In Portugal, the economic uptick is translating into direct foreign investment, said Economy Minister Manuel Caldeira Cabral on the sidelines of the World Economic Forum in Davos last month, when Eurostat had already released preliminary growth data. Cabral pointed to firms including Continental AG, Renault SA, and Mercedes-Benz AG. He also mentioned the upside of Britain’s planned withdrawal from the EU on his country’s economy. “[Portuguese youth] some years ago were not finding jobs and were emigrating to the UK and Germany; now it’s UK, German, and French firms that are coming to Portugal and investing,” he said.
Greece, which lost roughly 25 percent of its GDP during the financial crisis, is not only experiencing direct impacts of the region’s 2017 growth, but is contributing to it. In December, the country’s manufacturing sector expanded at rates faster than any of those seen in the past nine years, while this month credit rating agency Fitch lifted its sovereign rating on the country after the Eurostat numbers were released. “Fitch believes that general government debt sustainability will improve, underpinned by sustained GDP growth, reduced political risks, a record of general government primary surpluses and additional fiscal measures legislated to take effect through 2020,” wrote Fitch analysts. S&P Global Ratings also boosted Greece’s rating in January.
Strong economic growth in Cyprus – 3.9 percent in the fourth quarter of 2017 compared to 2016 – is giving rating agencies something else to speak positively about. Fitch noted that this growth, plus the expectation of policy continuity after President Nicos Anastasiades’ reelection earlier this month, “should underpin” improving public finances. “A medium-term growth rate of two percent is plausible,” the agency noted.
Fitch attributes much of the growth in the small eastern Mediterranean island nation to exports, including an increase in services exports from tourism, and strong private consumption. Portugal also benefited from a spike in tourism and stronger exports due to the growth spurt across the entire continent, along with an uptick in domestic demand as investment increases.
“Investment is rising, helped by strong corporate profitability and buoyant confidence,” Sarah Hewin, the chief economist for Europe at Standard Chartered, told the BBC.
Investec economist Ryan Djajasaputra added that confidence has been hitting record levels since the crisis years, and unemployment is down to pre-crisis levels. Moreover, the European Central Bank’s stimulus policies have brought down the cost of borrowing in recent years and, thus, greatly strengthened the Eurozone, he said.
Even with all of this optimism, more needs to be done at both the EU and national government levels to bolster pro-growth policies and work toward greater equality amongst Member States.
With Cyprus, for example, Fitch noted that very weak asset quality in the banking sector remains a risk to recovery and “high external indebtedness is another structural weakness that will take time to address.”
The European Commission, in its seventh report on cohesion, highlighted that in the Member States hit hardest by the economic downturn, including several southern states, public investment levels remain low and are “a cause for concern, not least because of their possible effect on socio-economic disparities between Member States and regions in the EU.” However, the Commission also reported that disparities have started to shrink as widespread growth has occurred. “In 2014, disparities in employment started to narrow, followed by disparities in GDP per head in 2015.” The narrowing of these economic discrepancies within the bloc, followed by subsequent years of growth in 2016 and 2017, has allowed Europe to restoke its economic fire.
