The acronym PIGS (Portugal, Italy, Greece, and Spain) was coined earlier but gained popularity as a pejorative term 14 years ago during a time of economic turmoil in Southern Europe. However, the economic landscape of Europe has shifted dramatically in the past decade and a half. While income convergence remains distant and the South still has less influence in major economic decisions, the region has experienced significant growth. Countries like Spain, Portugal, Greece, and Italy have seen higher GDP growth compared to their Northern counterparts, with the Southern block accumulating a growth rate two points higher than the North since 2019.
The impact of the 2020 pandemic hit the Southern European countries dependent on tourism and services, but soon things started to change. The 2022 energy crisis had a greater effect on Central and Northern countries with industries heavily reliant on cheap Russian gas, leading to a shift in economic dynamics on the continent. Southern countries like Spain, Portugal, Greece, and Malta have shown strong growth rates, outperforming Northern countries like Germany and the Netherlands. Factors contributing to this growth include the rebound in tourism, increased exports, and a shift in spending patterns from goods to services.
The recent economic performance of Southern European countries goes beyond post-pandemic recovery, with ongoing positive trends and surprises in their economic performance. Inflation differentials in favor of Southern Europe have boosted internal demand, while the external competitiveness has also improved. The region’s export-driven industries, particularly in services, have continued to grow, supported by a stronger labor market and increased immigration. Public investment, spurred by recovery funds and a more flexible approach to fiscal rules, has also played a significant role in driving economic growth.
Despite the positive economic trends, there are potential risks on the horizon. Weaknesses in private investment, productivity, and potential political shifts in the upcoming European elections could pose challenges for Southern European countries. However, experts are hopeful that the recent economic improvements, driven by factors such as export growth, tourism, and recovery funds, will have a lasting impact and help drive convergence with Northern European countries. The focus on renewable energy and the reshaping of the global economy present opportunities for Southern Europe to capitalize on these changes and further boost economic growth.
While each Southern European country has its own unique story and challenges, the region as a whole has shown remarkable progress in economic performance in recent years. Italy faces particular challenges due to its distance from European debt and deficit targets, lack of clear growth strategy, and political stance on immigration. Spain, on the other hand, benefits from strong employment data and lower energy prices due to solar photovoltaics. The future outlook for Southern European countries varies, with Spain in a relatively better position compared to Italy, which faces more hurdles in achieving economic growth and stability.
