The ECB has a hard slog in 2025 as the economic dynamics of the eurozone are going through a transformation that is striking in its sheer force. Nations once at the heart of the sovereign debt crisis – Portugal, Ireland, Greece, and Spain – now outpace traditional powerhouses like France and Germany on growth prospects.
This reversal is also a measure of the resilience of those peripheral states. The Organization of Economic Cooperation and Development is projecting growth of over 2% in the economies of southern Europe by 2025, whilst the growth rates the very same organizations have forecasted for Germany and France remain less than half of those figures.
A Reversal of Fortunes
This is an unseasoned shift pointed out by Carsten Brieske, global head of macroeconomic research at ING. “We are seeing a wonderful recovery. The southern European countries are rebounding and growing in full force, while northern European economies are suffering structural pain,” he said.
The debt crisis that hit the 2010s resulted in drastic austerity measures and reforms being imposed on Greece, Spain, and Portugal. The three countries faced a crisis at the economic level, but they are stronger now. Germany and France are also dealing with their own issues; from industrial slowdowns to internal political uncertainty.
Germany’s economy narrowly escaped recession at the end of 2024 due to slumping industrial output, soft demand from China, and stiffer competition in the EU car market by Chinese carmakers. Those energy-dependent industries lost most of what they had gained through very cheap Russian gas.
However, in France, the economic growth slows as the government seeks to curb national debt. Its attempt to balance its budgets by raising taxes and curbing spending has led to weakened consumer and business activity. According to the OECD, the GDP growth of France is going to decline at 0.9% during 2025 from 1.1% in 2024.
Southern Europe Bounces Back
These economic reforms introduced post the debt crisis by some countries such as Greece, Portugal, and Spain are used to their advantage. This came at a great cost at that time but these nations will now benefit from their diligence, says Fabio Balboni, who is a senior economist of HSBC.
However, economists believe that there is still much to go for these economies. Greece, for instance, is still on the path to be more sustainable and balanced.
Balancing Act of ECB
ECB President Christine Lagarde has admitted that it is challenging to control the changing economic landscape of the eurozone. As inflationary pressures are easing, the ECB has indicated further interest rate cuts in 2025. Borrowing costs were already cut to 3% in 2024 to help support economies that were still struggling to regain momentum.
However, the different economic realities of the eurozone make it more difficult for the ECB. “The need to ensure balance in monetary policy is even more crucial, especially when southern economies are growing while traditional leaders like Germany and France face headwinds,” Balboni added.
A Changing Eurozone
As the eurozone follows this, it’s reiterated that flexibility is required and the power of resilience in the region. Analysts are of the opinion that cooperation by the member states and policy changes in accordance with the situation would be needed to sustain the growth trend and stabilize the whole group.
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