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A two-speed Europe led by the Iberian Peninsula
Difficulties are worsening in the Eurozone's largest economies. The Iberian Peninsula is an exception, driven by employment fueled by immigration, tourism and foreign investment.
It's 2024 after Christ. Europe's largest economies are gradually being 'taken over' by the recession, but there is one region that remains resilient, 'populated by irreducible Iberians who still resist'.
Difficulties are worsening in the Eurozone's largest economies, with Germany facing a political crisis following the resignation of Finance Minister Christian Lindner by Chancellor Olaf Scholz, leading to the collapse of the governing coalition and the possibility of early elections. The country is facing a recession for the second year running, with the unemployment rate having risen since April 2022 from 5% to 6.1% last October, penalized by the war in Ukraine, rising energy costs, and loss of industrial competitiveness. In addition, growing competition from China in the automotive sector and the slowdown in the Chinese economy have weakened German exports.
The French economy is growing at little more than 1% and the labor market remains stagnant, with unemployment at around 7.3% for the last two years. Moreover, this fragile growth has been underpinned by 'unsustainable' budget deficits. Public accounts are worsening and the government anticipates a negative budget balance of 6.1% by 2024. The Gallic public debt is approaching a maximum of 114.9% of nominal GDP in 2020, dictated by the pandemic.
The Iberian Peninsula's economy is an exception and has been converging with the Eurozone, driven by the increase in employment fueled by mass immigration from Latin American, African and Asian countries, looking for security and job opportunities. They are also attracted, in many cases, by the same language. Tourism too, on the rise after the pandemic and favored by the relocation of part of Eastern European tourism, has been an important economic engine for Portugal and Spain, generating a virtuous circle of more employment, production, tax and parafiscal revenues, greater disposable income and increased investment and consumption. Growing foreign investment has also strengthened the Spanish economy.
The number of people employed in Spain reached a record 21.8 million in the third quarter, with the unemployment rate falling to 11.2%, the lowest level since the third quarter of 2008. The Spanish economy grew by 3.4% year-on-year in the third quarter, leading the Eurozone and the main advanced economies in 2024, surpassing the USA, with an IMF forecast of 2.9%, well above the Eurozone average. Portugal is closely following this performance, given the strong trade relationship with the neighboring country, which absorbs around a quarter of Portuguese exports. Portugal has also benefited from the increase in employment, which has grown by 14% since 2013 and now has more than five million people in work, in addition to the boost provided by tourism.
In addition, our country's public accounts have improved greatly over the last two years, narrowing the spread of the Portuguese yield against the German one to just 40 basis points, the lowest figure since June 2008.
Paulo Monteiro Rosa
Source: Banco de Portugal/INE Spain/Banco Carregosa