- Last year, Malta was the fastest growing economy in Europe (5%)1
- Portugal’s public debt has reduced from 135% of GDP in 2020 to 98% in 20242
- Spain was the most popular EU destination for international tourists last year, accounting for 22% of total regional tourism3
While the two heavyweights of Europe (France and Germany) endured a challenging 2024 both politically and economically, this was not true for all. A trend has emerged in recent years whereby ‘periphery’ European countries GDP growth has quickly outpaced that of the traditional core economies. These countries for example Spain, Italy, Greece and Portugal have soared ahead of Germany, France, Austria, the Netherlands and Belgium – which begs the question of what’s driving this trend and whether it will continue into 2025.
Core vs periphery European GDP
Source: Capital Economics, 2025
What is fuelling this growth?
Higher immigration
Immigration has significantly increased within the marginal EU countries, providing steady growth in employment with foreign born workers accounting for c.3.9% of employment growth in periphery economies vs c.2.3% growth in core since 2022. With Italy announcing plans to extend its work visa scheme and Spain simplifying its immigration legislation, this activity looks set to continue4.
Tourism spike
Travel receipts from periphery countries have grown to over 5% of GDP, up from 3% in 2021. With c.88% of EU citizens holidaying domestically and household savings in the region continuing to rise, 2025 could be another positive year for tourism4.
Next generation EU (NGEU) funding
The €806bn scheme was designed to encourage a post-COVID recovery, and particularly benefits periphery economies with project grants and loans amounting to c.10% of their GDP. The premise to receiving such funding is attractively broad and should contribute positively to one of these six objectives: green transition, policies for the next generation, inclusive growth, digital transformation, social cohesion and social resilience5.
Fiscal uncertainty
Last month a pivotal event took place within fixed income markets as France’s debt dynamic weakened upon fears of continued fiscal loosening mounted following the governments collapse. The French and Greek government 10 year borrowing costs converged for the first time as the market briefly suggested that the Greek government is more likely to re-pay its debt than the French. With concurrent political volatility in Germany and no budget currently agreed, growth prospects remain muted6.
Will it continue?
There is reason to believe that the exceptionalism of fringe European economies growth is likely to continue overall, albeit at a slightly reduced pace given several country specific factors. For example, the tax-incentive fuelled construction boom in Italy has boosted consumption in recent years, but its impact will likely soon begin to fade, and on the contrary, the Netherlands robust private sector consumption and tight labour market could boost the overall picture for core economies4.
Bowmore portfolios
We have recently adjusted our large cap European equity exposure towards a blended approach, balancing both growth and value styles given continued weakness in the economic data out of major European economies and their vulnerability to potential tariffs. The move increases our exposure to consumer demand independent industries that can provide defence should the European growth weaken further, for example financials.
The economically smaller European nations, for example Greece, Turkey and Hungary are each allocated to within our next generation frontier market fund. The fund specialises in identifying opportunities within earlier stage growth countries which are often in sectors that are underrepresented in traditional emerging market indices. The fund returned 9.3% in 2024.
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Source: LSEG Datastream, as at 10/01/2025
1 Statistica, 2024
2 Trading Economics, 2025
3 Eurostat, 2025
4 Capital Economics, 2025
5 Next Generation EU, 2025
6 Reuters, 2024
