Never before has Iberia been “so important”
These strange and unusual times have worked a form of wacky magic on southern Europe – an area so maligned in the past by ‘heavy hitters’ within the European Union.
Long gone are the days when Portugal and Spain were part of the ignominious PIGS (a terrible title reflecting economic output shared with Italy and Greece). Now, according to economists interviewed by Spanish newspaper El Economista, the southern cousins are the “Iberian miracle” that has saved Europe from recession.
With the economies of France and Germany in the doldrums, Spain and Portugal were responsible in the last quarter of 2024 for 50% of the eurozone’s growth.
Pundits admit: “Probably never before has the Iberian Peninsula been so important in keeping the euro economy afloat.”
But it is not really that ‘simple’. Investment bank JP Morgan explains the dynamic is not in the least bit sustainable: unless Germany and France start recovering, Europe is careering towards recession – because, behind the veneer of euphoria, Spain and Portugal actually account for just 13% of the eurozone’s GDP.
In other words, had their joint performance been excluded from the analysis of last year’s last quarter, eurozone growth would already have dipped into negative territory. In fact, “annual growth would have halved”, says El Economista.
Demographic growth
What effectively happened was that Spain and Portugal delayed the inevitable (?): Spain, on its own, accounted for a third of all eurozone growth while Portugal brought up the rear: Spain grew by 0.8%, Portugal by 1.5%. Year-on-year, Spain grew by 3.5% and Portugal by 2.7%.
On an annual basis, the ‘boost’ provided by the two countries was even clearer: the eurozone grew by 0.9% and, of that percentage, Spain and Portugal accounted for 0.43 percentage points (Spain contributing 0.3815 and Portugal 0.0459 points).
As El Economista explains, both countries are going through a cycle of expansion in their economies, with ‘notable demographic growth’ (thanks to the wave of immigration), job creation and “taking advantage of new consumer preferences worldwise, which favour mass-produced services from both Spain and Portugal”.
Proof of this is the unemployment rate, which in both economies is showing a clear downward trend, despite the growth in population.
This means, says the paper, that the Iberian Peninsula is growing fast enough – as is the demand for the goods and services that they produce – to absorb a large number of workers.
Trump turbulence
In the case of Portugal, the unemployment rate is 6.4%, while in Spain it stands at 10.61% – a rate which, at first glance, seems high but which, by Spanish standards, is ‘dangerously’ low, explain economists, as it is well below the non-inflationary unemployment rate.
Thus, the two southern European countries – once part of the eurozone’s ‘greatest problem’ (remember the times when they were criticised for spending community funding on ‘drinks and women’?) – have “now become the horses pulling a very heavy cart, carrying the declining giants of Germany, France and Italy”.
And that is the problem: horses and heavy carts tend to end badly. The recovery of the ‘declining giants’ is essential if the euro economy is to grow in a sustainable and diversified way, El Economista explains – reiterating that growth right now is “highly concentrated in two countries that account for so little of the eurozone economy”.
JP Morgan amplifies the warning, posing the question: “what could happen in the future if Spain starts to lose momentum?
“Spain alone can only do so much, given its size in the eurozone – and there are significant downside risks if key countries perform even worse than we have already anticipated in our forecasts, with the possible impact of a second Trump term a relevant concern.”
That concern keeps increasing. JP Morgan’s comments featured in El Economista’s pages last week; this week we already have the European Commission vowing to “respond in kind” to 25% tariffs announced by President Trump on imports into the US of steel and aluminium, not to mention wider geopolitical concerns.
With all the noise generated by the new American administration, the way forwards on practically every level has become even less clear.
And in Madrid, ‘Patriots for Europe’ launch reconquest under banner “Make Europe Great Again”
The media may not want to talk much about it, but thousands attended the first leaders summit in Madrid last weekend of the Patriots for Europe (PfE) party, which seeks to become the “new normal in Brussels and across the EU”.
Portugal’s own far-right leader André Ventura was among the speakers whose stark message to current European leaders – “from Macron to Scholz, to (Spain’s) own Pedro Sanchez” – was “your time is over”.
Simplistically, of course, commentators can gloss over these remarks – even ignore the event altogether – but practically it is already clear that current European leaders are losing ground/relevance and public support, as their once strong economies nose dive.
The MEGA movement looks thus certain to have a populist appeal. Cornerstones for change are the dismantlement of the European Green Deal, the tearing down of the rainbow flag (representing LGTBIQ rights) and the implementation of family and two-gender-only policies.
A key member of the group, France’s Marine Le Pen, told the summit on Saturday: “We are facing a truly global turning point (…) Everyone understands that something has changed. Meanwhile, the European Union seems to be in a state of shock.”
In such a scenario, it is extremely difficult to ‘forecast’, although analysts have done their best – which for Portugal and Spain at least has brought some solace: the economic recovery enjoyed by both appears to be ‘set to continue’.
“We expect 2025 to be another strong year for the Spanish and Portuguese economies, consolidating the Iberian Peninsula’s position as a clear leader in a struggling eurozone economy,” Ricardo Amaro, an economist with the Oxford Economics think tank, has said in a recent report.
It is one of those sentences that hovers between ‘glass half full’ and ‘half empty’: a clear leader in a struggling environment. In plain speak, things could go either way.
By NATASHA DONN